Forex Markup Fee Explained: Meaning, Charges & How to Avoid It

When you make an international payment or shop on global platforms, you often end up paying a little extra. This extra amount, which many users often overlook, is the forex markup fee. 

The forex markup fee may not appear as a line item in the transaction details. It quietly adds up and increases your overall spending. It’s crucial to understand how these charges work and when they are applied. This article explores what is forex markup fee, its impact on payments, and how it is crucial for managing cross-border expenses. 

What is a Forex Markup Fee? Meaning of Forex Markup Fee

Forex markup fee means the extra charges that the banks and card issuers add for currency conversions and international transactions. It ranges from 1% to 3.5% on the base exchange rate. 

The forex markup fee is not shown in your bill as a separate charge. Therefore, it is a service charge that banks and credit card issuers charge for providing you with the convenience of converting money. 

The Forex markup fee clearly indicates the additional percentage that financial institutions charge on foreign currency transactions. This acts as a revenue stream for many. 

How Does the Forex Markup Fee Work?

To understand how forex markup works, it’s advisable to look at an example. Let’s take a look at it. 

1. You liked a sneaker on a US Website listed for $100. 
2. Considering the current conversion rate (1 USD = 94.65 INR)*, the actual cost of the sneakers should be around ₹9465. 
3. You will want to pay using your credit card. The bank will charge a 3.5% forex markup fee and won’t give ₹94.65. 
4. The forex markup fee will come around 3.5% x ₹9465 = ₹331.28
5. So the actual cost you’ll be paying for the sneakers will come up to ₹9465 + ₹331.28= ₹9796.28

*subject to change

You paid approximately ₹330 extra, which wasn’t listed as a few. This applies to all your international spending. 

How Much Is the Forex Markup Fee in India?

The forex markup fee in India ranges from 1% to 3.5%. Banks and credit card companies mostly charge this for international transactions. 

What is the Forex Markup Fee on Different Payment Methods?

There’s no standardised forex markup fee, and it can vary significantly depending on the payment method. Below are the forex markup charges for different payment methods:

1. Credit Cards: Usually, 2% to 3.5% is charged for every transaction. 
2. Forex or Prepaid Travel Cards: Since they are designed for travel, the cost is usually lower. Some forex cards and prepaid travel cards have zero markup. However, the standard is around 0% to 1%. 
3. Debit Card: The forex markup charged on debit card transactions is usually lower than that on credit cards. Therefore, the range is usually between 1% to 3%.
4. International UPIs or Fintech Apps: Some platforms promise zero forex markup or a very low rate. However, before opting for any such platform, it is advisable to verify the details and thoroughly understand the terms and conditions. 

How is the Forex Markup Fee Different from the Currency Conversion Rate?

Below is the difference between the Forex Markup Fee and the Currency Conversion rate:

How is the Forex Markup Fee Different from the Cross-Currency Fee?

The cross-currency fee will be charged when you spend in a currency that isn’t preloaded. It will also apply to wallet-to-wallet transfers. The cross-currency fees typically apply to multi-currency prepaid cards. 

Here’s the difference between the forex markup fee and the cross-currency Fee:

Example: How Forex Markup Fee Impacts Your Spending Abroad?

The forex markup significantly impacts your spending abroad. Since it inflated the currency conversion rate, it will directly affect your expenses. Therefore, you end up paying more than the mid-market rate. 

For example, your ₹2 lakh trip can end up costing you ₹6,000 extra. Although it seems like a small amount, you’re paying the extra amount. For all your international transactions, especially while swiping the card abroad, the bank will charge you a specific fee. 

Even if you purchase for around $100 (₹9,462.45)*, you end up paying ₹9,699.01 due to the 2.5% markup. 

*subject to change 

Note: The forex markup rate can range from 1% to 3.5%. The above-mentioned example is a rough scenario. 

As this is a hidden expense, it will rarely appear on your statement. Moreover, when you withdraw money abroad, you will pay not only a higher forex markup fee but also a flat ATM fee. 

How to Avoid or Reduce the Forex Markup Fee?

Below are some of the key ways to reduce or avoid the forex markup charges:

1. Research: It is always advisable to research and compare different cards and banks. Research can help to save a lot of money. 
2. Get the zero-forex-markup credit card: Many don’t understand zero forex markup meaning. However, to ease the trouble, some banks have started offering premium credit cards for foreign travellers. These cards have zero or low markup fees. You can use these cards. 
3. Use Fintech wallets and apps: Modern financial apps often include international transaction services, too. These fintech apps offer mid-market exchange rates and low or no transaction fees. 
4. Use a forex travel card: You can get a Thomas Cook forex card preloaded with foreign currency. You can lock in the exchange rate while loading. Therefore, you’ll be able to avoid forex markup fees every time you swipe. 
5. Get billed in local currency: While travelling abroad, never accept an INR bill. Instead, bill in the local currency. 

Is a Forex Markup Fee Charged on Online International Payments?

A forex markup fee is usually charged on online international payments. When you convert INR to foreign currencies on a debit or credit card for purchasing. This is applicable under different scenarios, for example,

• When you purchase and pay on international websites
• Your subscriptions are billed in foreign currency

Pro tip: It is advisable to pay in the original foreign currency and not INR. Through this, you can significantly avoid double forex markup charges. 

Forex Markup Fee on Credit Card vs Forex Card – Which Is Cheaper?

Forex markup fee on a forex card is cheaper than that of a credit card. Most credit card issuers charge between 2% and 3.5% on every transaction. However, the forex markup fee on forex cards usually ranges between 0% to 1%. Some forex card issuers also offer zero forex markup fees. 

What are the Common Myths about the Forex Markup Fee?

The forex markup fee is a foreign concept for many. This is precisely why there are so many myths surrounding it. 

Some of the common myths about the forex markup charges include: 

• Forex Exchanges at the Airport Are Cost-Effective

Well, is it? Not really. When you exchange currency at the airport, you end up paying a high markup fee. Exchanging at the airport counters is an expensive choice, for the markup fee can be around 5% to 15%.

• Buying Forex in India is a Lengthy Process

Busting this myth, you don’t have to undergo the lengthy process of buying forex in India. With Thomas Cook by your side, you can actually buy forex in India easily. 

• It Will Be Listed as “Fee” In the Statement

Contrary to the belief, your forex markup charge will not be listed as a line item in the bank statement. There’s a lack of transparency that makes forex markups insidious. They can discover the loss after they get the mid-market rate. 

• Dynamic Currency Conversion is a Good Idea

While dynamic currency conversion sounds like a good idea, it isn’t. For example, a foreign merchant will offer to bill in the home currency. In this case, the DCC will be worse than the bank’s forex markup rate. 

• Debit Cards Don’t Charge Foreign Transaction Fees

Debit cards have lower fees than credit fees. However, they do charge transaction fees unless the bank states otherwise. 

FAQs on Forex Markup Fee

• What is a forex markup fee?

Forex markup fee means the percentage-based hidden charge (ranging from 1-3%) that the banks or credit card issuers add for foreign currency exchange transactions. It can be charged while shopping on international websites, using a credit card abroad, or receiving any foreign remittance. 

• What is the forex markup charged in India?

In India, the forex markup charges usually range from 1.5% to 3.5% for foreign currency conversions. Therefore, if you spend around ₹2,00,000 on your international trip, you might end up paying up to ₹7,000 in charges. 

• Is the forex markup fee refundable?

No, forex markup is usually not refundable. This is because they’re embedded in the exchange rate applied during transaction processing. 

• Do forex cards charge markup?

Yes, mostly forex cards charge a markup fee. Nonetheless, you can choose Thomas Cook’s prepaid forex cards. These cards have zero issuance and reload fees, making them cost-effective for users. 

• How can I avoid the forex markup fee?

Some of the key ways to avoid the forex markup fee include using a forex card or a non-foreign-transaction-fee card. Additionally, on your international trips, you can also pay in local currency and avoid dynamic cash conversion.