Decoding zero forex markup on debit, credit cards

At present, three credit cards are available that also waive markup fees, which typically range from 1.5% to 3.5%.

Shipra Singh
Updated7 Jun 2023, 12:22 PM IST
The regulation presents a dilemma for individuals whose foreign expenses are not likely to cross  <span class='webrupee'>₹</span>7 lakh. (AFP)
The regulation presents a dilemma for individuals whose foreign expenses are not likely to cross ₹7 lakh. (AFP)

Starting 1 July, there will be significant changes in the way you spend during foreign holidays, including for food, shopping, commuting as well as for recreational activities. International transactions on debit or credit cards exceeding 7 lakh will be subject to a 20% tax collected at source (TCS), but loading a prepaid forex card or purchasing local currency in India will attract TCS from the very first purchase.

The regulation presents a dilemma for individuals whose foreign expenses are not likely to cross 7 lakh. They will be inclined to use a debit or credit card to save the 20% upfront cost levied on forex, but the downside is that they will have to shell out an extra 2.5-6% per transaction in the form of forex markup and transaction fees, which is less than the 1% in the case of zero-cost forex cards..

Nevertheless, there is some relief. Select fintech firms have partnered banks to offer zero forex markup debit cards, significantly reducing the cost of international spending. Presently, three such credit cards are available that also waive markup fees, which typically range from 1.5% to 3.5%.

Read the fine print

Niyo Global card, Fi Visa Platinum debit card and Jupiter debit card have zero forex markup fee. While Niyo has tied up with Equitas Small Finance Bank and SBM Bank, Fi and Jupiter have a partnership with Federal Bank.

In early 2023, the Reserve Bank of India had put restrictions on international debit and credit cards issued by SBM Bank after finding slip-ups in regulatory compliances. The clamp down hit Niyo Travel card users, said Swapnil Bhaskar, head, strategy, Niyo, which is in the process of inking a partnership with other banks. “Niyo Global customers can take credit and debit cards from multiple bank partners with zero mark- up forex charges,” he added.

In the case of these debit cards, the issuing bank waives off its own markup fee but the markup charged by the payment network, though small, is still levied. “Rates offered by payment networks to these fintechs are already marked-up,” said Sudarshan Motwani, founder and CEO, BookMyforex. This means the conversion rate on these cards is slightly higher than mid-market exchange rates despite the zero markup promise.

Moreover, in the case of Fi and Jupiter, forex fee is not waived for all debit card users (see graphic). Fi charges 2.5% forex mark-up on accounts that do not mandate minimum balance. Accounts that require 10,000 minimum balance are offered zero forex markup up to 50,000 monthly spends and those with 50,000 minimum balance mandate get zero forex fee on all spends. Also, 2.5% and 3.5% markup is charged on all transactions at first on Fi and Jupiter, respectively, but is reversed for eligible transactions within 7-30 days.

Zero-forex credit cards too have certain conditions. For example, the IDFC First Wow credit card is issued only against a fixed deposit (of 5,000) opened with the bank. “Credit limit is equal to the FD amount,” Sumanta Mandal, founder, TechnoFino, said.

This could be a costly proposition for some as you have to lock-in money in an FD, which is akin to locking in 20% with the government through TCS. It can be argued that an FD earns an interest of 5-7%, unlike the TCS, the two are similar as they require you to pay the amount upfront.

RBL Bank World Safari credit card could be a good option for those travelling overseas frequently in view of the zero forex fee and free medical insurance, despite not earning any rewards on international transactions.

Axis burgundy private credit card is another option but it is available only for HNIs. “One needs burgundy private relationships with Axis bank to get the card, which requires 5 crore NRV (net relationship value in the form of salary, deposits, demat holdings etc),” said Mandal.

Before taking your pick, do find out about annual maintenance fee or transaction fee, to calculate how much you will effectively be saving (see graphic).

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First Published:7 Jun 2023, 12:22 PM IST
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