Is currency conversion and foreign transaction fee inevitable when purchasing a service from a country different from a credit card company?

Question

I purchased plane tickets at Kuwait Airways website, for a trip originated from US with a transition/overlay at Kuwait, by using Fidelity Rewards Credit Card, a credit card issued in US. My credit card account shows not just the transaction, but also a second one with 1% of the ticket price, labeled as FRGN TRANS FEE and charged by Kuwait Airways if I am not mistaken.

DESCRIPTION: Frgn Trans Fee-Kuwait Ai2292113807162 Ci

TYPE: FRGN TRANS FEE

Merchant details
CATEGORY: KUWAIT AIRWAYS
METHOD: Manually Entered

I remember seeing the price in US dollars and not seeing any currency conversion or foreign transaction fee, when placing the order directly at the airline website. My credit card company replied to me:

As disclosed in your Cardmember Agreement, if you use your card for retail purchases at foreign merchants or for cash withdrawals from foreign ATMs, your foreign currency transaction will be converted to U.S. dollars, and you will be assessed a foreign transaction fee. The fee is 1% of each U.S. dollar amount. This fee applies when the merchant is located in a country other than the United States, even on transactions submitted to us in U.S. dollars.

The merchant's business name listed with Visa is Kuwait Airlines.

When using a credit card to make a purchase of a service of a merchant located in a country different from US where the credit card company is located,

• Does it matter to the following questions whether the merchant lists their service in US dollars or a different currency on their website?
• is there always currency conversion?
• is a foreign transaction fee inevitable, regardless of its percentage of the service price (and regardless of whether the credit card company or the merchant want to charge any at all i.e. whether the percentage is 0%)?
• who charges for the foreign transaction fee, the merchant, or the credit card company?
• Is it possible to know about the amount of foreign transaction fee when placing an order with a merchant outside the country of the credit card company?
• Is it possible to avoid foreign transaction fee using a different payment method from credit card? For example, debit card, Paypal?

Thanks.

Answer 1

who charges for the foreign transaction fee, the merchant, or the credit card company?

Foreign transaction fees are charged by your credit card issuer, not by the merchant. Not every credit card has foreign transaction fees, credit cards specifically geared towards travelers (e.g.: many airline branded, especially high-tier, or high-tier brands like Sapphire from Chase or Premier from Citi, or even the Costco card) do not charge foreign transaction fees.

Worth mentioning that the "foreign" in the "foreign transaction fee" relates to the merchant, not the currency.

Is it possible to know about the amount of foreign transaction fee when placing an order with a merchant outside the country of the credit card company?

Absolutely. It should be detailed in your credit card terms and conditions. In the US it must be explicitly stated in the term sheet before you sign up for the card.

is there always currency conversion?

Merchants operating in a different country operate in the currency of that country. So if you transact with such a merchant there's bound to be a conversion somewhere.

Currency conversion is a separate issue, and different banks and merchants have different rates. Usually doing conversion through your credit card would yield best results (especially higher-tier/traveler brands), but check and confirm. Different cards would have different rates, some better for one currency, others may be better for another. Shop around. From my experience, allowing the merchant to do the conversion would yield the absolute worst (by far) rate for you since it gives the merchant an opportunity to make more money off of you. Merchants listing prices in foreign currency would usually assume their own conversion rate.

Is it possible to avoid foreign transaction fee using a different payment method from credit card? For example, debit card, Paypal?

Shop around for credit cards without foreign transaction fees, there are a lot. Specifics depend on your country, I mentioned some US-centric examples above.

Answer 2

The listed currency only sometimes matters. If you pay in your local currency, either the merchant will charge you from a local (to you) subsidiary - in which case there’s no foreign transaction fee - or from their normal account but in your currency, in which case you’ll pay the fee and get the merchant’s usually-poor exchange rate.

There is always a currency conversion when paying in a foreign currency; that’s tautological. Not all banks charge such a fee, but most do, and those charges will be listed in your account agreement. To the extent that the merchant charges any fees, those will be included in the total you directly pay, not added on later.

Revolut is a common service used by people trying to avoid foreign transaction fees (and poor exchange rates). There are others as well. Paypal will not help you avoid this fee, and debit card foreign transaction fees are often higher than credit card fees.