Rupay forex card out soon: Should you pick one over a credit/ debit card?

The Reserve Bank of India (RBI) has given  its go-ahead to banks for issuing RuPay forex cards to expand the payment options for Indians travelling abroad. These cards can be used at ATMs, PoS machines, and online merchants overseas.

When you are travelling abroad you have broadly three easy options for making transactions – Prepaid cards, Debit Cards and Credit Cards. Prepaid cards are forex cards which can be preloaded with money. You can use these cards to make purchases abroad with the funds available in it. These cards are basically ‘Pay Now, Use Later’.

Debit cards are cards which are linked to your bank account. Whatever money you have in your account, you can use that money abroad, provided your debit card is internationally accepted. You can only use funds in your bank account through your debit card.

On the other hand, credit card gives you greater accessibility to funds. They offer interest-free loan, and some cards may even offer discounts and reward points on international flight bookings, hotels and waive off certain charges on international transactions for their customers. 
 

 

What is a forex card?
A forex card is a prepaid travel card that you can load with a foreign currency of your choice. You can use a forex card just like a credit or debit card to pay for your expenses in a local currency abroad. You can even withdraw local cash from an ATM.

Are they cheaper than using debit or credit cards?

They are a cheaper alternative to credit or debit cards because a debit or credit card requires the cardholder to pay a currency conversion charge each time the card is used. "This is due to the fact that the card issues payments in Indian Rupees, which then has to be converted into the currency of the country the cardholder is in. This conversion charge, called a cross currency mark-up is between 2-5%, depending on the type of card and the issuing bank," said BankBazaar.

When you opt for a prepaid forex card, you need to load these cards with one or multiple foreign currencies and use them interchangeably in different countries.

A forex card comes with two main variants–multicurrency forex cards and single currency cards. A single currency card has limited use, and you will incur higher cross-currency charges if you use it in another currency. "A multicurrency card can travel with you wherever you go. You can load it with up to 23 currencies and use it across the world. You can also shuffle funds from one currency to another whenever you need via prepaid NetBanking -- for example, if you are visiting two countries which have different currencies," said HDFC.

When you make a transaction abroad, using a credit card you will be charged a price over and above the actual transaction value, known as mark-up fee. This is usually 2-3 percent of the transaction value. But if you use the forex cards you will  not incur this charge as long as the card is used within the same currency jurisdiction for which it is loaded. But if the card is swiped outside the currency jurisdiction, cross-currency fee will be charged.

So, while prepaid Forex cards do not carry a forex mark-up fee, for transactions where the transaction currency is different than the currency available on Multicurrency Forex Card, the bank charges cross currency markup of around 2% on such transactions.  In such a scenario, where you are travelling to more than one country, opt for multi-currency forex cards.

"In comparison with debit/credit cards, which may charge you about 3% for ATM withdrawals, a Forex card usually has minimal ATM withdrawal fees," said Bookmyforex.

The biggest advantage of a forex cards is that the foreign exchange conversion rate is locked as soon as you load the money in to it. But in the case of a credit card, the rates are applied at the time of the transaction, i.e., when you swipe your card. Therefore, whatever the prevailing rates are at that time will get applied along with other transactional charges.

Forex cards are also not linked to your bank account, unlike Debit cards. You can also choose an expense limit for Forex card but can’t do the same for Debit card.

What about privileges?

However, when it comes to privileges in travel, credit cards offer world-class benefits and rewards including complimentary access to airport lounges, 24X7 Concierge services, and complimentary membership to the airline programs and hotels. Also, for every transaction, you make with credit cards you earn reward points which you can redeem later for a number of choices. With travel credit cards you can earn points in the form of Miles which are redeemable for booking tickets and much more. Forex cards generally lack such privileges or offer them in a limited manner.

What does the new TCS rule mean for forex cards?

While credit cards are the most expensive option when it comes to cash withdrawals abroad, with the new changes in the tax collected at source rules, forex cards can actually make your foreign travels more expense. Recent amendments in the Foreign Exchange Management Act (FEMA) have brought international transactions made via credit cards, debit and forex cards under the Liberalised Remittance Scheme (LRS). From 1st July 2023, these transactions will also attract 20 per cent TCS. The only exception is that international credit and debit card spends outside India up to Rs 7 lakh shall be excluded from LRS. Hence no TCS shall be applicable on payments made by international credit and debit cards up to Rs 7 lakh in a financial year. But the government has not yet provided any specific clarification  on the threshold limits for applicability of TCS on forex cards and cash exchanges

 Foreign exchange dealers have raised concern over this lack of clarity on whether any exemption of TCS would be provided for small value transactions involving foreign currency cash and prepaid forex cards.

Difference between credit cards and forex cards, according to BankBazaar

Tell me about RuPay cards

Globally, Visa and Mastercard are the two most widely used card payment networks, and RuPay is India’s home-grown developed card payment network but currently has a low acceptance ratio for transactions outside India.

Launched in 2012 by the National Payments Corporation of India, RuPay cards are issued by more than 1,100 banks including state-owned lenders, private banks, regional rural and cooperative banks. RuPay has been promoted by the government as India’s homegrown card network. Currently,  you can purchase RuPay debit cards, RuPay credit cards, and  prepaid cards. RuPay cards are available as per variants in these formats -- Government schemes, classic, platinum, global and select. RuPay forex cards are next in line.

Currently, RuPay cards are accepted at the points of sale (PoS) machines powered by Discover of the US, Diners Club, JCB of Japan, Pulse and Union Pay of China. In March 2012, RuPay went global by tying up with Discover Financial Services to bring international services to Indians. It  strengthened its network capabilities by launching RuPay JCB Global Card in association with JCB International Co Ltd in July 2019.S uch tie-ups ensure that RuPay cards is accepted overseas at ATMs and POSs and for e-commerce transactions wherever JCB and Diners Club cards are accepted

The RuPay JCB Global card can be used at RuPay card accepting points in India and JCB card accepting points outside India for PoS, E-Commerce and ATM.

“The regulator's announcement to allow Indian banks to issue RuPay Prepaid Forex cards for overseas usage is a significant advancement in facilitating smooth cross-border transactions. This development enhances convenience, cost efficiency, and security, empowering individuals and businesses to engage in cross-border payments with ease. The widespread adoption of RuPay cards abroad supports the Government of India’s vision of a digital economy, promoting digital payments, financial inclusion, and overall economic growth," said Akash Sinha, Co-Founder & CEO, Cashfree Payments.

The RBI decision comes in view of RuPay Debit and Credit cards issued by banks in India gaining international acceptance through bilateral arrangements with international partners and co-badging arrangements with international card schemes.

 RBI and NPCI International Payment Limited (NIPL) have been working with other countries through bilateral agreements and co-branding deals to increase the outreach of RuPay cards. Already, the acceptance of RuPay cards by Bhutan, Singapore, Nepal, and the UAE strengthened the push for more cross-border payment partnerships and expanded the global reach of UPI and RuPay.

 “RuPay forex cards, like other Rupay cards, will be issued by Indian banks in partnership with NPCI. Fees on RuPay cards may also differ compared to their counterparts. This is because RuPay operates on a domestic payment network, unlike other issuers operating on an international network," said Adhil Shetty, CEO of BankBazaar.com.

The RBI move also aligns with the central bank's vision to enhance the internationalisation of RuPay cards and ensure their wider acceptance and usage worldwide.
 

RuPay cards are designed to facilitate electronic payments within India and promote financial inclusion. They operate on the domestic card network in India and offer an alternative to international payment cards systems like Visa and Mastercard. RuPay cards are also widely used for disbursing government welfare benefits, subsidies, and other social security payments to beneficiaries.

"The launch of RuPay cards aligned with India’s vision of creating a more inclusive and self-reliant financial system while promoting digital payments and boosting domestic economic growth. RuPay has made significant strides in establishing itself as a credible alternative, particularly within the Indian market. Over the years, the acceptance of RuPay cards has expanded significantly, and it has now gained acceptance at many international locations as well. RuPay cards were designed to cater to the specific needs and preferences of Indian consumers. With the introduction of RuPay Prepaid Forex cards, payment options for Indians travelling abroad have further expanded. Moreover, with RuPay Debit, Credit, and Prepaid Cards for international use enabled for issuance in foreign jurisdictions, the competitiveness of RuPay as a viable payment option will be consolidated further," said Shetty.

"The permission granted to banks for issuing RuPay pre-paid forex cards opens up new avenues for seamless and flexible cross-border transactions. This development brings forth enhanced convenience and efficiency for individuals and businesses engaged in international trade," said  Rajsri Rengan, India Head of Development, Banking and Payments, at FIS.

Still a lot of uncovered ground

While the Government has been pushing to expand the cross-border acceptance of RuPay cards, there is still a lot of uncovered ground. 

"Customers must thoroughly assess the acceptance of the RuPay network in the countries where they plan to visit. RuPay prepaid forex cards promise acceptance across overseas ATMs, PoS machines, and online merchants. However, customers should carefully understand the charges for ATM withdrawals and balance enquiries, as these could be far more expensive than using a debit card at a domestic ATM," said Ajinkya Kulkarni, Co-Founder and CEO, Wint Wealth.