Shoppers stung with 'hidden' credit card fee

Wednesday, 10 October 2018

Conversion fees seem small but add up quickly.

Shoppers purchasing from overseas websites, and New Zealanders travelling abroad, are being pinged for every item they put on their credit cards. But how much they pay in fees varies significantly.

Shoppers are charged currency conversion fees when they buy something in a foreign currency.

But research from financial product research site MoneyHub shows those credit card conversion fees range from 1.85 per cent on Kiwibank's Mastercard to 3.5 per cent on a PrezzyCard.

Researcher Christopher Walsh said most banks charged about 2.5 per cent.

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Shoppers are charged currency conversion fees when they buy something in a foreign currency.

'While this doesn't sound like much, the fees add up over the course of a holiday or when buying something from outside of New Zealand,' he said.

'Despite debit and credit card currency conversions being provided by Amex, Mastercard and Visa who convert each purchase into New Zealand dollars using their own FX rates, banks are hungry for their cut of each transaction too.'

He said a customer of a New Zealand bank who travelled overseas and spent $2000 on their card could expect to pay about $50 in foreign exchange conversion fees.

'If cash is withdrawn from an overseas ATM using a debit card, the total fees can be significantly higher. Some banks charged up to $7.50 per withdrawal plus a 2.5 per cent commission, meaning that taking out $200 overseas would cost as much as $12.50 in bank fees, which seems very high.

'Customers don't need to travel overseas to incur these fees. The boom in online shopping means anyone ordering items from overseas using a debit or credit card will be charged the same currency conversion fees by their bank as if they were physically in the country.'

He said MoneyHub research showed Kiwibank and ASB had the best value, at 1.85 per cent and 2.1 per cent, respectively.

ANZ, TSB and Westpac charged 2.5 per cent. Debit cards often had higher fees again, up to 2.8 per cent.

Flight Centre and FlexiGroup this week launched a card with no international transaction fees - the Flight Centre Mastercard. It has an annual fee of $50 and the Flight Centre rewards scheme rather than cash back options or consumer rewards other cards might offer.

'We constantly get feedback from our customers that they struggle to understand their bank credit and debit card fees while abroad, and that they don't know what other options are available as it's not safe to travel with large amounts of cash – I'm proud that we're now able to provide a solution,' said Flight Centre NZ managing director David Coombes.

Banking commentator Claire Matthews, of Massey University, said the variation in charged would depend on how banks attributed their overheads across their activities, the profit margin they included and some economies of scale.

'I would expect them to be similar but not identical.'

Prashant Trivedy of another financial comparison website, Pocketwise, said overseas spending on New Zealand-issued cards had increased 60 per cent over the past five years.

'With more people using their credit cards for their everyday expenses, it's important for them to understand the costs associated with this. Unfortunately, most people are only aware of the surface costs, but not the other hidden costs, such as exchange rates, and refund policies when making purchases online,' Trivedy said.

Trivedy said if someone wanted a refund on an international purchase, they might not get their currency conversion fee back.

'Some cards refund you only the purchase amount and not the currency conversion charge. A few other cards charge you conversion costs even on your refunded purchase amount. Typically these terms will depend on the provider of the credit card facility.

'While conversion charges and refund policies on each individual transaction may not feel painful, over time these not-so-obvious charges can grow to a substantial amount over a number of purchases. It pays to shop around for the right credit card.'

Currency conversion charges:

ANZ – 2.5%

ASB – 2.1%

BNZ – 2.25%

Kiwibank – 1.85%

Westpac – 2.5%

Source: MoneyHub