Your Debit & Credit Card Payments Abroad are NOT FREE! Read here to find out what Foreign Transaction Fee is and how much you can save…
If you travel abroad often, you know it is not a good idea to use your Debit or Credit for shopping or paying your hotel bills etc. You will always be charged too much. Here is a breakout of the charges involved in a Debit or Credit Card transaction abroad:
There are basically three types of charges involved:
1. Foreign Currency Conversion Fee –
This is the charge/fee that goes to Visa or MasterCard or any other network that your card is on. Your Debit Card or Credit Card is free of any charge when you use it on a Visa or MasterCard Network within the country it was issued. If you use it abroad, you pay in a different currency and withdraw a different one. The conversion happens from INR to that currency and Visa/MasterCard automatically charge a 1-2% fee on foreign currency exchange and anything in excess of it is generally a small margin of profit for the bank.
2. Foreign Transaction Fee–
This is the charge of your Card provider. When you carry out a transaction in foreign currency, your card provider will charge you for that transaction. The foreign transaction charge is around 2.5 -3.5% figure of the total transaction amount.
3. Cash Advance/Withdrawal Fee –
Withdrawing Cash using your Credit card comes with a charge called Cash Advance fee, irrespective of whether you used the card in India or Abroad. The fee, however, is higher when you use your card abroad. And when you withdraw money from ATMs abroad using your debit card, you will have to pay a withdrawal fee too. This is the fee that your bank agrees to pay to the bank whose ATM you used to withdraw cash as they allowed the use of their ATMs. You can incur a 1-4% additional fee every time you carry out an overseas cash withdrawal.
What is Foreign Transaction Fee?
In simple language, Foreign Transaction Fee or the interchange fee is the brokers’ fee. You have to pay a charge or fee when you carry out a transaction abroad even if it is less than a Dollar/Euro. There is a 3-way arrangement between your bank, the network that your card is on (Visa/MasterCard) and the merchant. This arrangement gives your bank the power to deduct a percentage of the transaction which in banking terms is called Foreign Transaction Fee or interchange fee. This usually is to cover things like electricity, internet or any other admin costs. In reality, the merchant is a mere bystander in this arrangement. Because the agreement is between the network and your bank. Merchants don’t have any power to negotiate because if they refuse they have to either pay up or would not be able to use Visa or MasterCard’s services.
You, as a cardholder, may not be aware of the Foreign Transaction Fee but merchants are. And because of this fee, a lot of merchants in India refuse American Express cards as they have high Foreign Transaction Fee. To save yourself from all these charges the best option for you or anyone else travelling abroad is to exchange foreign currency beforehand and take it in a Forex Card. Forex Cards have no foreign transaction fee and Forex cards of BookMyForex.com come with small ATM withdrawals Fee*. Let us see what and how much do Banks in different countries charge the cardholders.
Foreign Transaction Fee in India
Banks in India charge around 3-3.50% foreign transaction fee whenever you use your debit or credit card abroad. Some banks have come up with new Travel Credit Cards which they claim are charge fee. But as explained above, this fee is levied by your card network provider. And the agreement that your bank has with Visa or MasterCard means you have to pay no matter what.
This is a question that people often ask but RBI does not have any control over Visa or MasterCard or on the foreign banks. RBI’s control is on Indian Banks and as explained above this charge is levied on by your card network or by the foreign bank.
You would be surprised to know that the Spanish government and the regulatory bodies instructed all the Spanish banks to charge only 7 cents as Foreign Transaction Fee. No matter what you buy abroad, a Coffee or a Yacht, you will just pay 0.07 Euro.
The nice folks up north of Spain—The Dutch—who are actually referred to as the inventors of the modern digital banking are more charitable. Dutch charge only €0.02 as Foreign Transaction fee.
The US of A have tried to create a competition but it hasn’t worked well. Though the regulatory bodies in the US have limited the amount that can be charged as the Foreign Transaction Fee.
In 2015, the European Union introduced regulations that put a cap on how much a bank (that is within the Eurozone) can charge as Foreign Transaction fee. The fee currently is 0.20% of the transaction for Debit cards and 0.30% of the transaction for Credit Cards.
Ireland which used Euro as its currency didn’t agree with the EU regulations. They currently charge 0.1% as Foreign Transaction Fee and the maximum a bank can charge is €0.50.
Our northern neighbours charge 0.35% of the transaction amount on Debit Cards and 0.45% on Credit Cards. However, the total fee should not be more than 13 yuan.
The fee is around 1.5-8% and depending on the amount of the transaction.
Not yet. But there is an alternative—Forex Card. Until then, we can only hope to follow the example of the Spanish and the Dutch and use the regulators to control interchange fees.
Why is Forex Card an alternative?
—Everything you need to buy can be purchased using a Forex Card
—Most recommended and safest form of carrying currency nowadays. Prepaid travel cards are pin protected, have configurable spending limits and are fully replaceable in case lost or stolen.
—Usually available at better rates than currency notes (cash) and traveller’s cheques.
—Better than credit/ debit cards – With Prepaid Travel cards you avoid paying the 2% to 5% transaction fee (Visa/ MasterCard, Issuing bank fees) that is charged when you use your international debit/ credit card. Also unlike credit, debit cards you aren’t susceptible to variable rates as forex loaded on your prepaid card is loaded at a fixed rate.
—Convenient: You can load them anytime. 24×7 customer care service.
—Always available – unlike foreign cash and traveller’s cheques, which are subject to availability, you can load foreign currency anytime on your prepaid Travel Cards.
—All foreign establishments (hotels, stores etc.) accept Travel Cards (VISA or MasterCard) without any charge.
—Ability to withdraw cash from ATMs abroad completely free of charge
—Comes with a free insurance cover
—None. Forex cards are the best way to carry foreign currency when travelling overseas
What you need to know:
—Do a research first about the features and benefits of different forex card providers. Some banks and exchangers charge hidden fees.
—Always buy your forex card well in advance. It can take up to 24-72 working hours for a card to be loaded with currency.
If you still have any questions on Foreign Transaction Fee, you can comment below and we will get back to you.
You can buy a Forex Card from BookMyForex.com and we will deliver it to your home