What Happens When You Swipe Your Debit Card Abroad

When you swipe your debit card overseas or pay on a foreign website, the transaction occurs in the foreign merchant’s local currency. Your bank then converts the amount into Indian currency (rupees) and debits it from your account balance.

The exchange rate applied for the conversion is determined by the card network, and it contains the mark-up of the bank, as well. Foreign transaction fees are also levied by most banks for making international transactions. All these combined result in the final amount being more than what would be expected by the current market rate.

For instance, if you pay $500, and the conversion rate for the bank is 2.50 per cent for the transaction (average currency conversion fee for debit card transaction typically ranges between 1 per cent and 3 per cent), your cost base is Rs 44,030 ($500×88.06). Add the transaction fee and the base cost becomes Rs 45,131. After a 3 per cent foreign transaction charge, the net debit would be approximately Rs 46,485. If the real-time exchange rate is Rs 88.06 per dollar, you are actually paying Rs 2,454 extra due to the mark-up and charges.

What Banks Typically Charge

The overall cost of making a purchase with your debit card while abroad consists of three primary elements.

• Currency conversion mark-up: Banks will often add 1-3 per cent mark-up above the exchange rate set by the card network.

• Foreign transaction fee: This will normally be between 2.50 per cent and 3.50 per cent of the amount of the transaction.

• ATM withdrawal charge: When you withdraw money abroad, your bank will typically levy a fixed amount (usually a flat fee of $2-5) as well as foreign transaction fees. The operator of the local ATM can also impose its own fee. Some banks also provide limited free ATM transactions abroad.

Why Transaction Alerts Arrive Late

Many cardholders observe that international transaction alerts come hours or even days later. This is because foreign transactions are settled through several channels.

Once the merchant processes the charge, it is routed to its acquiring bank, which forwards it to the card network. The network then sends it to your card-issuing bank for verification and settlement. Each of these processes takes time, and so confirmation messages tend to be delayed.

Time differences also come into play, particularly where transactions are made later in the evening in local time. Merchants also batch payments at the close of the business day in some instances, slowing the alert further.

Spending Smart Abroad

Before travelling abroad, confirm with your bank if your debit card is activated for international use, and check the applicable fees. Always choose to pay in the local currency when offered an option, as opting to pay in your home currency through dynamic currency conversion will add another layer of mark-up.

For regular travellers, a lower mark-up multi-currency or forex card can prove more economical. Regular checking of your account will also help you keep check on any unexpected discrepancies or variations in the exchange rate on the day of the transaction. 

It may seem effortless to use a debit card overseas, but each transaction goes through multiple layers of conversion and processing. From the bank’s mark-up, foreign transaction fee and potential ATM fees, the total expense could add up by as much as 5 per cent.