Wondering Why Your International Earnings Come Less Than Expected? It's Because of Forex Markup Fees

You worked for an international project worth 5,000 USD but received around $4.300, making you wonder whether the payor has debited some amount. If you have completed all your work without any absence, there‘s no debit case. Instead, it’s due to the forex markup fee levy. As more Indians are earning their salaries and receiving payments for freelance work or exports in foreign currencies, understanding the dynamics of forex markup fee has become more important.

These are small percentage fees accounting for 1-3.5% of each foreign transaction. With these fees, your international earnings can be reduced substantially over time. The mark-up fee application has gone beyond travellers to include even professionals earning from abroad.

In this article, we will share insights into forex markup fees and how they impact your journey.

Defining Forex Markup Fees

A forex markup fee is an additional charge that banks, credit card providers and payment processors levy on the exchange rate when dealing with foreign currency transactions. Financial institutions hardly consider the mid-market exchange rate, representing the actual value between two currencies. Instead, they add a markup fee of around 1-3.5% of the foreign transaction to cover costs and generate profits.

The Working Methodology of Forex Markup Fees

The percentages may seem small, but not their impact on the net sum you will receive. Lets understand this with an example below.

Example - You received a payment worth 8,000 USD from your client. If we consider the live forex rate where 1 USD equals INR 85.85, you would assume your payment to be INR 6,86,800. However, as the bank applies a markup fee of say 3%, the fee amount to be debited touches INR 20,604. The net payment stands at INR 6,66,196 (6,86,800-20,604). You can see around INR 20,000 getting debited from your payment in the name of forex markup fees. Assuming the payment you received was for a month. Imagine the same payment for a year, the annual markup fee would touch around INR 2,50,000.

How to Identify Forex Markup Fees in Your Bank Statement?

The lack of transparency has always been the case with forex markup fees. Several financial institutions, especially conventional banks, dont mention these fees in the bank statement. A lot of us ignore the application of fees to our overall international earnings. Do check the foreign inward remittance advice (FIRA) document you receive from the bank for each international transaction to check how much the fee has been levied.

By checking the document thoroughly, you can check the exact exchange rate applied to your remittance amount. Check the rate applied on the document with that of the live mid-market exchange applicable to the date of remittance. The difference between the two rates is a marked-up exchange rate. Most likely, banks will not explicitly mention the fee amount.

Where Do Financial Institutions Levy a Forex Markup Fee?

The fee is levied on several financial transactions involving foreign currencies. Here are some transactions where forex markup fees are usually applied.

Credit Card Transactions

While travelling or shopping using credit cards abroad or on international websites, Indias financial institutions apply a forex markup fee to the exchange rate. The fee can amount to 2-3.5% of the exchange rate. Similarly, when you receive credit card payments from international clients, the bank charges a markup fee while processing these transactions. However, you can apply for credit card 0 foreign transaction fees available at some banks across India.

Currency Conversion by Banks

Banks charge forex markup fees while converting currency involving wire transfers from abroad, foreign cheque deposits, and fund transfers from foreign bank accounts to the Indian account.

Online Payment Platforms

While transacting through international online payment platforms, a forex markup fee will be levied when dealing with overseas transactions. These platforms can charge greater fees than traditional banks.

Frequently Asked Questions on Forex Markup Fees

Do Forex Markup Fees Differ from One Bank to Another?

The fees differ based on the varying rules and operational structure of banks across India.

Why Am I Levied a Markup Fee by Banks on Foreign Currency Transactions?

Because banks want to cover their operational expenses and make a profit by charging a markup fee.

How to Identify the Markup Fee on Foreign Transactions?

You can check the Foreign Inward Remittance Advice (received through an email by the bank) to check the exchange rate applied to your amount and compare it with the live exchange rate. The gap is the markup fee.

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