This article first appeared in Personal Wealth, The Edge Malaysia Weekly on March 23, 2020 - March 29, 2020

Credit and debit cards are part of the technological evolution that has provided travellers with the cashless option when making payments overseas. However, many may not be aware of some of the charges imposed, especially when using features such as dynamic currency conversion (DCC). 

DCC is an optional service that allows travellers to pay in ringgit rather than the currency of the country they are visiting. In many cases, merchants will ask travellers whether they prefer to pay in the local currency or ringgit. Some may choose to pay in ringgit, believing that they are paying a lower amount. In fact, they will be subject to a DCC fee and potentially a higher foreign exchange rate than if they had paid in the local currency. 

According to Mohd Sedek Jantan, head of investment and financial planning at UOB Kay Hian Wealth Advisors, the main idea of the service is to provide ease of use for cardholders, who will immediately know how much they are required to pay at the point of transaction. That is because the DCC service locks in the exchange rate when the transaction is carried out. 

This compares with other options of paying in the local currency, such as where the exchange rate is determined by the card issuer. However, card users may not be aware of the prevailing rate on the spot as it is only applied on the day the transaction is processed, which could be days after the transaction itself.

“Once a customer chooses to pay in ringgit, there will be additional charges imposed by the card networks [such as Visa and MasterCard], ranging from 0.8% to 1% on the ringgit amount transacted. Hence, the customer will need to pay the overseas transaction fees plus the DCC service fee. This fee is applied even if they are a privilege banking or private banking client,” says Mohd Sedek. 

For example, a Malaysian goes to Singapore and wants to pay for goods worth S$1,000 in ringgit using a Malaysia-issued card. After the exchange rate has been applied, the amount in ringgit may be RM3,200. If the DCC rate is 0.8%, he will be charged RM25.60. 

There are also other fees that could be added on at the point of transaction, such as a foreign transaction fee and administration fee. If an overseas transaction fee of 1% is levied on the above-mentioned transaction, the total amount would come to RM3,257.60. 

Based on a cursory look at the websites of some banks in the country, a few of them are very transparent when it comes to the charges imposed for these services, clearly stating the DCC service fee on their websites and whether the exchange rates are higher than those typically imposed on local currency transactions. Other banks, on the other hand, do not state that they charge for the DCC service. However, there is a separate section in their fee disclosure page for ringgit transactions made overseas, informing clients how these transactions are treated. 

For some banks in Malaysia, all transactions made overseas are automatically converted into ringgit using the US dollar as the base currency on the date it is processed. Hence, there is no option to use the DCC feature. However, the exchange rates may be determined by card networks such as Visa and MasterCard. The transactions may include an administration fee or a foreign exchange spread ranging from 1% to 1.25%. 

For example, if one chooses to pay for goods worth S$1,000 in Singapore, this amount is converted into US dollars first. Using MasterCard’s online calculator on March 16, the amount after conversion comes to US$712.50. This is then converted into ringgit at a spread fee of 1.25%. The total amount is RM3,097, excluding other possible fees.

For some other banks, the transaction charges depend on the card issued, regardless of whether payments are made in ringgit or the local currency. 

Spending smarter overseas

Acknowledging that there is a lack of clarity when it comes to the charges applied to overseas transactions, Finwealth Management Sdn Bhd director of financial planning Felix Neoh says Malaysians can take some steps to practise smarter spending when travelling. For instance, it is best to make payments in advance before travelling. 

“Let’s say one wants to go overseas and would like to rent a car. Usually, the vendors will ask their clients to either pay a booking fee or pay in full in advance. If they choose to do so, the only charge incurred is the exchange rate. There is no additional merchant or bank fee,” he says. 

Those with more time to plan can open a multi-currency account, suggests Mohd Sedek. If one is planning to travel to London, for example, he can open a GBP account at any local or foreign banks. Although the banks may impose some fees, these are relatively lower than the credit card transaction fees and DCC fee.

“Also, some banks provide interest on foreign currency deposits and even free personal insurance coverage for multi-currency account holders. If one already has a savings or salary account at Bank A, I suggest that he open a foreign currency account at the bank too. This will provide him with account consolidation, making it easier for him to manage his personal finances,” says Mohd Sedek.

Neoh says Malaysian travellers can look at other payment options such as multi-currency cards. There are several in the market, including the RHB Multi-Currency Visa Debit Card, AirAsia’s BigPay card and Merchantrade Money, a prepaid card and e-wallet. 

RHB’s card features zero conversion charge or transaction fee for its supported currencies. BigPay only applies MasterCard’s exchange rate, with no additional fees, on overseas transactions made using the card. Merchantrade Money allows users to preload their cards with the currencies of the countries they are visiting, allowing them to make payments with no additional fees. However, they may be subject to a membership fee, annual fee and other fees for services such as cash withdrawal. 

Neoh advises Malaysian travellers to shop around for the best rates and consider the possibility of hidden fees before making any overseas transactions. “A lot of people call their banks to inform them that they are going overseas only to ensure that their cards are not blocked. They do not call to ask what fees they will be subject to. I think Malaysians need to be more aware of the fees imposed on them and factor these into their travelling plans.” 

Mohd Sedek concurs. He says Malaysians should do some research to get cards that best suit their needs. “Some banks provide specific credit cards for travel. Customers can also opt for debit or prepaid cards. The latter tend to have a more competitive exchange rate. 

“Generally, all card providers have to disclose the terms and conditions and explain how they determine currency conversion rates and the fees for overseas transactions. There are a number of financial aggregators available online for customers to make comparisons.”

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