Cracking the Code: Understanding Foreign Transaction Fees for UAE Travelers
Navigating the complexities of credit card fees can be challenging, especially when traveling abroad. Two terms often used interchangeably, “foreign transaction fee” and “foreign transaction markup fee,” refer to different charges. Understanding these differences can help you make more informed decisions and potentially save money on your travels.
Foreign Transaction Fee
A foreign transaction fee is a charge applied to purchases made in a foreign currency or processed by a foreign bank. This fee typically includes two components:
- Currency Conversion Fee: Charged by the payment network (e.g., Visa, MasterCard) for converting the foreign currency into the local currency (AED for UAE cards). This fee usually ranges from 1% to 2% of the transaction amount.
- Currency Conversion Fee: Charged by the payment network (e.g., Visa, MasterCard) for converting the foreign currency into the local currency (AED for UAE cards). This fee usually ranges from 1% to 2% of the transaction amount.
- Issuer Fee: An additional fee charged by the card issuer (the bank) for handling the foreign transaction. This fee is usually around 1% to 2% of the transaction amount.
Together, these components make up the total foreign transaction fee, which typically ranges from 2.5% to 3.5% of the transaction amount.
Foreign Transaction Markup Fee
A foreign transaction markup fee, on the other hand, specifically refers to the additional fee imposed by the card issuer on top of the currency conversion fee charged by the payment network. This fee is essentially the issuer’s way of earning additional revenue on foreign transactions and is part of the total foreign transaction fee.
Example
If a credit card has a total foreign transaction fee of 3%, it might be broken down as follows:
Currency Conversion Fee (charged by Visa/MasterCard): 1%
Foreign Transaction Markup Fee (charged by the issuer): 2%
In practice, cardholders usually see only the total combined fee (foreign transaction fee) on their statement, and the specific breakdown between currency conversion and markup fees is not always transparent.
In the UAE as of July 2024, the ADCB Traveller Card and the FAB Infinite Travel Card have no issuer fee, markup, or processing fee on international purchases. However, the payment network’s fee will still apply. This is a significant win for frequent travelers who can benefit from several other travel and lifestyle-related perks along with attractive loyalty reward
Key Differences
Foreign Transaction Fee: The total fee applied to foreign transactions, which includes both the currency conversion fee and any additional fees charged by the card issuer.
Foreign Transaction Markup Fee: Specifically, the portion of the foreign transaction fee that is added by the card issuer, on top of the currency conversion fee.
Summary
While both terms refer to fees associated with foreign transactions, the foreign transaction fee is the overall charge that cardholders pay, encompassing both the currency conversion fee and the foreign transaction markup fee. The markup fee is specifically the portion added by the card issuer. Understanding these components can help cardholders better comprehend the costs associated with using their credit cards abroad.
Conclusion
Clarifying the difference between foreign transaction fees and markup fees is crucial for making informed decisions while traveling. By understanding these charges, UAE residents can better manage their expenses and choose the best credit cards that align with their travel habits. Always review the terms and conditions of your credit card and consider cards that offer favorable terms for foreign transactions to maximize your travel benefits.
