What you need to know about foreign transaction fees and how to avoid them

Foreign transaction fees can have an impact on your business’ bottom line. Whenever you or your employees use a credit or debit card to pay for business expenses in another country or currency, you may be charged unexpected fees. Without the right financial infrastructure in place, you may also be charged fees when sending money overseas by bank transfer.   

The better that you understand foreign transaction fees and foreign exchange (FX) fees, the more informed choices you can make about how you conduct your business or spend your money across borders. In this article, we’ll outline the fees that some financial institutions charge for foreign card transactions and bank transfers, and demonstrate how you can avoid these fees and enjoy more efficient global money management by using Airwallex. 

What is a foreign transaction fee?

When you buy an item in a foreign currency or a transaction involves a foreign bank, a foreign transaction fee may be incurred. This fee should be stated in the financial institution’s terms and conditions.

Money moves so seamlessly across borders now that it’s easy to forget the complicated picture going on behind the scenes when you use your card abroad or send money to another country. Countries and regions around the world have their own rules and regulations around financial transactions. Banks need to communicate to move the payment from one account to another. Card networks must be maintained, each with their own protocols around things like security and fraud. In addition to this, money needs to be converted from one currency to another, a process known as foreign exchange (FX).

None of this happens by magic. Financial institutions and card networks incur operational expenses, there are transactional costs, and a percentage markup is attached to currency trades. That’s why some financial institutions charge additional fees for card transactions when you are travelling abroad, or are at home but are purchasing goods or services from another country. Businesses will also be familiar with international transaction fees and foreign exchange if they have suppliers they are buying from that are in another country.

Types of foreign transaction fee

When using a credit card, the foreign transaction fee can be as high as 3% of the total transaction amount. That fee encompasses the currency conversion fee or network fee from the card network (e.g. Visa, American Express, Mastercard, Discover) which is usually 1%, and the issuer fee from the financial institution which issued the card, which is usually 2%. 

Different payment methods can come with different types of foreign transaction fees. For example, buying airline tickets from an international airline may incur foreign transaction fees. These can vary depending on the payment processor being used, and can take the form of percentage-based fees, fixed fees or a combination of both. 

Cash withdrawals from international ATMs can also be subject to foreign transaction fees. These can stack up, as they can encompass charges from the user’s home bank, from the ATM network, and a currency conversion fee. 

International payments directly from bank to bank can also incur steep transaction fees. The SWIFT network is a relatively fast and efficient method of sending money overseas, but it comes with charges from not just the sender’s and receiver’s bank, but also any intermediaries that the money may pass through before it reaches its destination.

The impact of foreign transaction fees on businesses 

Foreign transaction fees can make a dent in the savings of individual travellers and shoppers, but the impact on companies can be even more severe. When doing business across borders, the cost of international transactions can accumulate in a way that can erode profit margins.

Consider this: you’re a business in Europe, your suppliers are in China, your customers are everywhere from Australia to Canada, and your employees travel the world regularly to meet with wholesalers and conduct market research. Saving on foreign transaction fees can make the difference needed to keep the lights on.

How to avoid foreign transaction fees

Airwallex offers no-foreign-transaction-fee cards to businesses, allowing you and your employees to spend globally without incurring any unexpected fees. Airwallex cards are multi-currency, meaning you can also use them to pay for international expenses without incurring FX fees, as long as you have the correct currency balance in your account.  If you don’t have the correct currency available in your account, you’ll benefit from Airwallex’s market-leading FX rates.

With an Airwallex Global Account, you can receive, hold and spend money in multiple currencies. In practice, this means you can collect payment from overseas customers in their local currency, hold those funds in your account, and use them to pay for overseas expenses without needing to make costly currency conversions. Airwallex cards are a cost-effective way to pay for business expenses at home and abroad. Airwallex also supports cost-effective transfers to 150+ countries and regions in 46+ currencies with payments received in as little as one day. Say goodbye to hidden fees on your international spend and hello to smarter financial planning. Click here to get started.