Foreign transaction fee in overseas spending: what does it mean to consumer

Move aside COVID.

As we move to an endemic phase, it’s not surprising as more people are starting to catch the wanderlust bug.

Before you go big on your travel spending, here are two important key factors you need to understand: 

• foreign transaction fee
• dynamic conversion fee

Don’t underestimate these fees. They might snowball and eat into your travel expenses.

Before we get confused with the terms…let’s understand the parties involved

Let’s break it up into a few parties involved and how they get a cut out of your foreign expenses.

Cards association

Payment gateways that provide infrastructure to banks. Their network fees play a part in the foreign transaction fees.

Example: Visa, Mastercard, American Express and UnionPay

Banks

Financial institutions that issue your credit cards. Bank fees are a part of the foreign transaction fees.

Payment solution providers: They provide merchants with the platform to offer dynamic currency conversion fees.

Examples are Global Blue, First Data and Euronet Worldwide.

Merchant

The business that sells a product or services to you.

At the point of payment, merchants will offer the option to convert to your local currency.

Upon accepting the offer, you will be charged a dynamic currency conversion fee.

Consumer

You, the buyer of the product or services.

Now that we have all our parties addressed, let’s look at each definition.

What are foreign transaction fees?

Translation: Extra money to cough out for foreign currency payment.

This extra money is made up of two parts: Network fee and issuing bank fee.

Networks like Mastercard and VISA take up to 1% of the foreign transaction fees* for major Singapore banks like OCBC, DBS, and UOB.

You will find both fees combined and presented as one in your credit card bill.

On average, most banks charge foreign transaction fees that range between 2.5% – 3.25%. This applies to non-SGD transactions.

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How are they calculated?

Assuming you bought a product at USD100, here’s what you’ll be paying:

Product Price	USD 100
Currency conversion	SGD 133.71 10/07/2023 At : 09:30AM
Overseas transaction fee	SGD 4.345575 (3.25%) DBS
Total payment	SGD 138.06

You’ll be paying $4 more for the product. Don’t underestimate this, as small amounts do add up.

What are Dynamic currency conversion fees?

It’s a charged service to allow merchants to convert to your local currency. And you will have the option to do so at the point of payment.

Now hold your horses. Don’t get too excited about skipping the conversion gymnastics in your head.

The exchange rate offered is usually unfavorable. And the cost breakdowns are not shown upfront to you.

By agreeing to DCC, you will be paying more than SGD138.06 for a USD100 product.

How to avoid paying more DCC and FX rates?

If you plan to go overseas with your credit card here are four ways to avoid paying those extra fees:

Pay by cash

It’s a total no-brainer.

If you are paying by cash, there won’t be the option for dynamic currency conversions.

But we can’t be carrying that much cash all the time when we travel. So, leave the heavy lifting like hotels, car rentals or expensive shopping to your credit card. Use cash to pay for smaller transactions such as food, shopping and entertainment.

The only caveat is that you are probably at the mercy of the exchange rates in money changers.

Choose a cashback card that offers higher rebates

The typical foreign transaction fees are between 2.5% – 3.25%.

With that in mind, pick a cashback credit card that offers higher rebates than 3.25%. It may not be the most ideal method, but the assumption here is that higher cashback can cover a part of the foreign transaction fees.

Pay in foreign currency with your credit card

If there is one biggest takeaway from this article is that you have the option to skip the DCC fees.

At the point of payment, always ask to pay in foreign currency and merchants will have to abide by your decision. If you notice that option is not made available to you and you’re still charged the amount, you can dispute with your bank and request a chargeback.

Pair your credit card with amaze

With amaze, you get better rates with no extra fees charged, enjoy fantastic FX rates with every overseas purchase and earn InstaPoints on FX spends and redeem them as cashback or discounts on overseas money transfers.

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Disclaimer: This article is intended for informational purposes only. All details are accurate at the time of publishing. Instarem has no affiliation or relationship with products or vendors mentioned.