Forex card vs debit card: How to lower cross-border markup fees

Unlike debit cards, forex cards are not linked to your bank account, limiting your exposure to fraud and theft

- Shipra Singh

When travelling abroad, travellers can choose either cash or cards for payments. For card options, debit, credit, and forex cards are available. While most travellers would have a debit card, using it for international transactions is typically more expensive.

A more economical option is a prepaid forex card, which allows you to carry foreign currency in the form of plastic in place of cash. A forex card is cheaper because the markup charged on currency conversion is lower compared to what banks apply to debit cards when they are swiped outside India. However, they come with their own fees and charges.

Know the various costs

A forex card allows users to buy and load single or multiple currencies. When you load the currency on the card, the bank converts it according to its prevailing exchange rate. The key difference compared to debit cards is that the markup charged on international payments done with debit cards is, in most cases, bigger than the spread that a bank or financial institution charges over the mid-market exchange rate while selling forex.

For example, the US dollar exchange rate offered by HDFC Bank on 8 November was Rs 85.99. If a user of an HDFC multi-currency forex card loaded the card with $500, they would pay about Rs 43,070 (including the Rs 75 loading fee charged by the bank). Now, for foreign currency transactions on debit cards, HDFC Bank charges a 3.5% markup. The exchange rate applicable on debit card transactions is the Visa or Mastercard wholesale exchange rate on that date.

Assuming the cardholder used a debit card on the Visa network, swiping the card for payments worth $500 would debit Rs 43,683 from his bank account, as per the Visa exchange rate calculator, approximately 1.5% more than using a forex card. To be sure, these calculations do not consider the 18% GST and service tax applicable to both forex card and debit card payments.