In India, people are constantly on the move for various purposes like work, leisure and more, and to solve for payments made abroad, forex cards have become a preferred option.
Banks and fintechs are also increasingly partnering, like Zaggle and Visa, Jupiter, Scapia and Federal Bank, Equitas SFB, SBM Bank, fintech company Fi — all are providing zero forex markup feature on their debit or credit cards to make overseas expenditure cheaper and push forex cards or such features among young international travellers, tapping into a newer consumer segment. FinTechs are also partnering to launch co-branded forex cards.
ETBFSI explains what forex cards are, how it works, what charges it carries and more through a FAQ schema.
What are forex cards and how does it work?
A forex card is a chip-based prepaid travel card that can be loaded with a foreign currency of choice. Forex cards can be used just like credit or debit cards to pay for expenses in a local currency abroad. One can also withdraw local cash from an ATM using forex cards.
A forex card supports a number of popular currencies such as USD, GBP, CAD, EUR, AUD, SGD and more. It further eliminates the need to carry a lot of cash when travelling abroad. It can be used at every location where card payments are accepted.
Forex card is an easy, safe and cashless way of carrying foreign currency. As they are pre-loaded, it is easier to keep spending under control when overseas because the cardholder can set a budget and top up the card as needed.
What charges do forex cards carry and what are the conversion rates like?
Most forex card transactions come without transaction fees, making them a cost-effective choice for international spending. Forex cards by banking and financial institutions generally have lower fees or charges and additional perks and privileges.
Multi-currency forex cards by banks or fintechs majorly charge interbank conversion rates, usually with zero forex markups. The cards also don’t usually carry any additional annual fees or card reloading charges.
Many forex cards also offer a locked-in exchange rate feature which protects the cardholder from fluctuating currency rates. Irrespective of the dollar rate on a given day, money in the card remains the same.
Forex cardholders are additionally protected from currency changes. The currency amount placed onto the card is determined by the exchange rate of the day, guaranteeing that there is no potential loss from transferring money from day to day.
There are also no charges when the forex card is swiped at POS terminals abroad, while debit and credit cards will be charged a small fee each time. Further, a number of card issuers offer deals and discounts when the forex card is used, incentivising their use.
What is the taxation structure for forex cards?
Currently, forex cards fall under the Tax Collected at Source (TCS) ambit, creating a disparity compared to credit cards, which enjoy exemption under the Liberalised Remittance Scheme (LRS).
Currently, forex cards attract tax collected at source (TCS) at 20 per cent if the user buys foreign exchange in any form beyond Rs. 7 lacs in a financial year, while there is no TCS on international credit cards irrespective of the amount and does not fall under overall LRS limit of USD 2,50,000 per annum.
Last year, the Finance Ministry had amended rules under the Foreign Exchange Management Act (FEMA) to bring international credit card spending under the Liberalised Remittance Scheme (LRS), subject to Tax Collected at Source (TCS). However, the rules were kept on hold for Credit Cards, while those for forex cards continued to have a high TCS of 20% on total forex spending over 7 lacs.
Who are the leading players here and how are they tapping into newer customer segments?
While banks have been offering forex cards or Cobranded cards with zero forex markup and features similar to forex cards, many fintechs have been aggressively tapping the segment for young international travellers and business travellers.
FinTech company bookmyforex is a leading player in this segment and have recently launched a next-generation foreign exchange app with real time forex card reloads.
“International travellers can top up their forex card during their trip instantly using the app, thereby eliminating the need to pre-plan holiday expenses or rely on credit cards. They can further enjoy uninterrupted access to true zero mark-up forex rates that are linked to interbank rate,” said Sudarshan Motwani, Founder, and CEO of BookMyForex.
Further to this, other fintech companies like Zaggle had also received a significant order from the global payments major Visa for making prepaid forex cards in October, 2023. The deal, which will be worth USD 20 million, will last five years, Zaggle had said in a filing.
Also recently, fintech startup Fi reduced the foreign currency transaction fee for its Amplifi credit card from 1 per cent to 0 per cent in December, matching the zero forex markup feature already available on its debit card.
Similarly, fintech startups Jupiter and Scapia also offer credit and debit cards charging zero forex markup, in collaboration with Federal Bank.
Amongst banks, leading private sector banks like HDFC Bank, Axis Bank, YES Bank, ICICI Bank and more offer forex cards to its customers, many in partnership or cobrand agreements with fintech companies while many provide completely in-house forex cards.
Why is forex card a preferred option over credit cards?
In the current times, Credit Cards are being marketed as Forex Cards or Travel Cards. Secured credit cards that require a minimal amount of FD are now used as Forex or Travel Cards and function exactly like Forex Prepaid cards with no document or TCS requirements, highlighted Sudarshan.
Forex cards provide the liberty for travellers to choose a small amount limited to their holiday money, as opposed to exposing their entire credit limits on their credit cards. Credit Cards also levy exorbitant interest rates and other charges in case of any payment failure.
For debit or credit cards, the cardholder must pay a currency conversion fee each time the card is used. This is because the card issues payments in INR, which must subsequently be converted into the currency of the country in which the cardholder is located. This conversion fee, known as a cross currency mark-up, ranges between 2-5 per cent depending on the type of card and the issuing bank.
Forex rates on credit cards denominated in Indian Rupees are applied at the time of transaction and hence these are opaque and generally much higher than Forex Cards. Hence, because of its affordability, transparency and easy control and track of spending, forex cards have increasingly become a preferred option for Indian travellers.
