Are you an avid traveler abroad? While online payments have revolutionized the way we shop, it is important to understand how transactions in foreign currencies work, particularly regarding exchange fees. If you plan to travel or make online payments in a country outside your local zone, this article is for you. We will explain everything you need to know about exchange fees to avoid any unpleasant surprises.
1) WHAT ARE EXCHANGE FEES?
Exchange fees are additional costs charged by your bank or card issuer when you make a payment in a foreign currency. These fees cover the cost of converting the currency from your account (e.g., Dollar) to the seller’s currency (e.g., FCFA)
2) DO NOT CONFUSE WITH EXCHANGE RATES
The exchange rate is the rate at which one currency can be exchanged for another. It indicates how much of one currency is needed to buy one unit of another currency. The main differences with exchange fees are:
1-a ) Exchange Rate
- It is the base rate used to convert one currency to another.
- Directly influences the amount of foreign currency you receive or pay.
- Constantly varies based on market conditions in the foreign exchange market
1- b ) Exchange Fees
- These are additional fees charged for the currency conversion service.
- Added to the total cost of the transaction after the exchange rate is applied.
- Set by your bank or card issuer, can be fixed or based on a percentage of the transaction.
3) WHY DO EXCHANGE FEES VARY?
Here are some reasons why exchange fees may differ:
- Policy of the card issuer or bank:
Each bank or card issuer has its own policy regarding exchange fees.
Some financial institutions impose higher fees to offset the costs and risks associated with foreign currency transactions.
For example, at PaySika, you may have exchange fees applied by our partners. We will explain more below.
- Type of card: Fees may differ depending on the type of card you use (Visa, Mastercard, etc.) and the card issuer. Some cards, such as PaySika, offer more advantageous conversion rates and reduced or no exchange fees. Take advantage of this by downloading it here: https://link.paysika.co/CarteXAFici
- Transaction amount:Exchange fees may be a percentage of the total transaction amount. Therefore, higher-value transactions will result in higher absolute exchange fees, even if the percentage remains constant.
- Foreign exchange market conditions: Exchange rates fluctuate based on supply and demand in the foreign exchange market (Forex). Banks and card networks adjust their conversion rates based on market conditions, which can lead to variations in exchange fees.
Other reasons:
- Regulations and taxes: In some countries, specific regulations or taxes may apply to foreign currency transactions, increasing exchange fees. For example, some jurisdictions impose taxes on international transactions that are passed on to consumers.
- Operational costs: The operational costs of banks and card issuers can vary. These include the costs of managing international transactions, fraud prevention, and currency exchange costs. These costs can be passed on to customers in the form of exchange fees.
- Business strategy: Some financial institutions may use exchange fees as a competitive lever. For example, a bank may offer reduced or zero exchange fees to attract customers, while another bank may impose higher fees to maximize revenue.
- Geographical differences: Exchange fees may also vary based on geographical regions and the currencies involved.
4) HOW TO MINIMIZE EXCHANGE FEES?
- Choose a low conversion fee bank card: Look for bank cards that apply low conversion fees for international transactions. Similar to the PaySika bank card available by downloading the app here: https://link.paysika.co/CarteXAFici
- Compare exchange rates: Before making a significant transaction, compare the exchange rates offered by different cards or payment services to find the best rate. Some institutions, like PaySika, may offer attractive conversion rates.
- Convert currencies in advance: If you are making multiple payments in a foreign currency, you can convert the money in advance. We will explain how to calculate the exchange rate at PaySika below.
5) WHEN DO I HAVE TO PAY EXCHANGE FEES?
- International online purchases: When you buy products or services on foreign websites using a different currency.
- Using bank cards abroad: When you use your bank card to withdraw money or make purchases in another currency.
- International money transfers: When you send money abroad in a different currency.
6) HOW MUCH ARE THE EXCHANGE FEES AT PAYSIKA?
NB: Exchange fees at PaySika only apply to users with USD cards. This is currently applied by our partner.
The exchange fees are 3% of the transaction amount in USD + $0.50.
For example:
You want to buy an item online for 30,000 NGN via your USD card. Assuming you are charged 1 NGN = 0.00066 USD. Therefore, the transaction amount is 0.00066 * 30,000 = 19.8 USD.
Here’s how your exchange fee will be calculated:
19.8 USD * 3% = 0.594 USD + 0.5 USD = 1.094 USD
The total amount debited from your PaySika account will be: transaction amount + transaction fees + exchange fees.
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