Foreign Transaction Fee on Credit Cards

Usually, MasterCard and Visa charge a foreign currency transaction fee of 1%. However, most credit card companies add an extra percentage on it, making the fee range from 1.5% to 3% or even more. Therefore, this fee differs from one credit card issuer to the other.

It is mandatory for every credit card issuer to disclose or reveal the fees involved with the foreign transactions at the time of issuance. If the issuer fails to do so, a settlement has to be paid to the cardholder.

However, this rule was applied earlier. Now, all this information is explained clearly in the credit card agreement. Therefore, it is crucial to read the entire credit card document carefully before applying. These essential details are also mentioned on the issuer's official website.

Foreign Transaction Fee on Top Credit Cards

Foreign Transaction Fees - Features 

1. Online Transactions: Foreign transaction fees also apply to online purchases made from international websites. Whether you're booking flights, purchasing goods, or subscribing to services, the fee is applicable if the transaction is processed in a foreign currency. 
2. Global Acceptance: Most major credit card networks like Visa, Mastercard, and American Express are widely accepted worldwide. Therefore, credit cardholders can use their cards in numerous countries and regions for various purchases. 
3. Fee Structure: Foreign transaction fees are usually calculated as a percentage of the transaction amount, ranging from 1% to 4% per transaction. This fee is in addition to any other charges imposed by the card issuer. 
4. Currency Conversion: When you make a purchase in a foreign currency using your Indian credit card, the transaction amount is converted into Indian rupees. Credit card companies typically apply the exchange rate prevailing at the time of the transaction, often with a small markup.

How Does the Foreign Transaction Fee Work?

The foreign transaction fee is assessed by the credit card issuer and is typically in the form of a percentage, 3% being very common. However, this percentage can vary from one issuer to the other.  

While 3% as a foreign transaction fee may not seem much, keep in mind that this applies to each foreign transaction that you make with the card.

Say, for example, you are someone who frequently travels abroad and shops the most on foreign websites, then cards with foreign transaction fees might not be the ones for you because paying those additional charges every time you make a foreign transaction with the card can actually turn out to be expensive when you calculate it for the entire year. In such cases, look for a card that doesn't include them.

Fortunately, not all cards charge on foreign transactions. There are a few that don't impose this fee. However, such cards need to be researched.

Pay Attention to the Currency Conversion Fee

If you have taken trips to abroad, then you would know how expensive it is to exchange the cash for local currency. Be it international ATMs or airport kiosks, you will always end up paying some extra funds to receive the cash.

However, what most of them are not aware of is that this concept applies to credit cards as well. Each time the credit card is swiped, you are being charged a fee for the currency conversion.

Unlike a foreign transaction fee, a currency conversion fee is not charged by the issuer or the credit card company. In fact, it is assessed by the payment processor of the card.  

Both MasterCard and Visa charge 1% of the amount that is spent overseas. It depends on the country you are traveling in.

Usually, the payment processor charges 1% to the issuer but they pass this fee to you. Now, this literally means that you will have to pay both foreign transaction fee and currency conversion fee each time a purchase is made with the card.

The trickiest part of the currency conversion fee is that it doesn't appear separately on the credit card statement. They are just included in the foreign transaction you have made.  

Moreover, there is no clarity on how much conversion fee the credit card company charges their customers. Customers usually compare the amount on their receipts with the ones that appear on the statements to know exactly how much the bank, or the credit card company is charging.

Currency Conversion Fee of Major Credit Cards in India

The Cross-Currency Markup is charged for each time a foreign transaction is made with the Indian credit card. Usually, credit card issuers in India charge 3% to 5% but this differs from one bank to the other.

Foreign Transaction Fee of Major Credit Cards in India

Two of the commonly accepted payment networks - MasterCard and Visa, act as the mediators between the merchant from which a foreign purchase is being made and the issuing bank (HDFC, SBI, Kotak Mahindra, Axis, etc.) Therefore, when you use a credit card outside India, both these payment networks charge 1% on the issuing bank and 2% if the payment network is different.

Therefore, it is important to read the charges before making any kind of foreign payment through the credit card.