online-shopping

Online shopping: do you know when and why you’re paying a fee?

Here’s a guide on how to avoid those fees when shopping online at an overseas store.

Have you ever noticed surprise fees on your credit card statement after an online shopping spree? We’re talking about hidden fees such as the international transaction fee (not shipping fees, custom duties or restocking fees when you return an unsatisfactory purchase). Some of these little extra charges might take you by surprise if you pored over your monthly statement, but most of them slip under the radar. It may only be a couple of dollars here and there, but that adds up to a fair bit in this rising era of global online shopping.

This guide will help you recognise which fees are applicable when buying from an overseas retailer, and how to avoid them.

Did you know?
  • According to an SMH report, as of January 2016, online retail spending is up by 9% to $16.6 billion, almost twice the rate of growth of traditional retailers.
  • According to the same SMH report, 35- to 44-year-olds are most likely to shop online.
  • 2 out of 3 Australians spend at least 90 minutes on mobile Internet every day.
  • In 2015, 30% of Australians made online purchases on their smartphones, and 10% on their tablets. (Source: Mintel Consumer Trends 2015 Australia and New Zealand.)

International transaction fee

In reality, the fee we really need to watch out for is this one. It goes by a few names (e.g. international transaction fee, foreign transaction fee, international fee, currency conversion fee, currency exchange fee). Despite the different names, they all mean the same thing – you’re paying a fee to shop in a currency that is not your local currency. This fee is typically 3–3.5% of your purchase, depending on your card.

How much could I pay in foreign transaction fees?

While 3–3.5% may sound modest in itself, this potentially amounts to a substantial sum over time if you’re a regular Internet shopper making purchases from overseas stores.

Case Study

Mary, who is by no means a heavy shopper online or in-store, buys a few things via the web each year. Firstly, Mary gets her preferred brand of vitamin supplements from an American online store. She spends on average $200 a month after shipping and currency conversion. Once a year, Mary also orders a designer bag from Europe which she considers her annual or birthday treat. This yearly indulgence usually costs about $1,600, often more. Based on this estimate, Mary spends at least $4,000 on online purchases in a year. At 3%, this means she racks up $120 in currency conversion fees alone. For Mary, this is worth a week of groceries, or a fortnight’s supply of vitamin supplements.

When does this fee apply?

This fee applies:

  • When you purchase something in a foreign currency. Obviously, you can expect to be charged a currency conversion fee when buying something in a foreign currency. This is probably reasonable and self-explanatory – the bank is charging you a fee for processing the foreign transaction.
  • When you purchase something from a foreign retailer. Following the same principle as above, you will be charged a currency conversion fee when shopping with an online retailer located outside of Australia. Sometimes this may not be apparent because the website’s prices may be automatically listed in Australian dollars due to your IP location. You may not be aware that the store is located outside of Australia.
  • When your retailer has a foreign bank. This last scenario is even harder to discern than the previous. Sometimes, the online shop may appear Australian because its URL ends with .au. Sometimes, especially in the case of global franchise stores, you think the shop is local because you see it everywhere in Australia. Neither of these factors guarantee that you won’t be paying a currency conversion fee because the store’s processing bank might be located outside of Australia. This fee will apply whenever a foreign financial institution is on the receiving end of your payment.

How can I avoid the foreign currency conversion fees?

Given the scenario above, it would be hard to know for sure when you could cop that international fee when shopping at a global retailer. Even what seems like an Australian company might have a foreign payment provider, which you’d never know. Short of altogether avoiding online shopping, here are some ways to completely eliminate this fee:

  • Use a debit or credit card with low or no international transaction fees. Some cards are specifically designed for overseas use, and offer the perk of low or zero international transaction fees. Compare a range of such credit cards and debit cards, and weigh up this perk in relation to other fees like the card’s annual fee.
  • Use a travel card. While travel cards are usually used when physically travelling abroad, these can also be great online shopping companions. Essentially, you’d get a travel card which supports the currencies you frequently use when shopping online, e.g. the US dollar or British pound, load the card up with those currencies, and then charge all your online purchases to your travel card.
  • Use an online payment system. Paypal might be the major brand most of us know, but there are alternative payment systems today including Google Wallet, Skrill, WePay, ProPay, to name a few. Using an online payment system would eliminate the foreign transaction fee, but be aware that you may be given an unfavourable exchange rate compared to your bank’s rate, which would then erode any savings.

What else do I need to consider when using my credit card online?

  • Security. Identity theft is a big one when it comes to online shopping. Reputable sites use high-security measures like data encryption, and you will know this by the ‘lock’ symbol found at the bottom of their page. Avoid buying from websites without this symbol, because you really don’t want the hassle of having to prove you were the honest victim of an identity or card theft. Discover how to avoid credit card fraud, traps, and scams.
  • Fraud protection. On that note, it is important to use a card with robust card protection policies like Mastercard, Visa or American Express. As a protected consumer, you are entitled to fraud protection, which addresses the risk of identity and card theft mentioned above. Mastercard and Visa offer this in the form of their “Zero Liability Policy” while American Express has its own “Fraud Protection Guarantee”. In any case, this means you’re not liable for transactions you didn’t authorise.
  • Purchase protection. Credit card purchase protection is a type of insurance which protects your purchases for up to three months against loss, theft or accidental damage. Most gold and platinum cards offer this as a complimentary feature but you may purchase it with a standard card, too. On the other hand, if your online purchase didn’t arrive at all, came damaged or not as described, you may request a chargeback instead with your credit card provider.
  • Refund protection. Refund protection is another credit card perk that might occasionally be useful to you. It covers refunds on purchases, such that your credit card provider will refund the cost of a purchase if the retailer refuses to, given you tried to return it to the retailer within 90 days of purchase.
  • Price protection. Price protection or “price guarantee” is offered on some cards where you can claim the difference in price on a purchase you made using that credit card, should you find the same item cheaper afterwards.
  • Reward points. If you shop online a lot, it might be worthwhile to make sure the credit card you use is also the reward card that collects points towards your next free flight or hotel stay. You may want to look for a frequent flyer card with no foreign transaction fees.

Compare No Foreign Currency and International Fees for Credit Cards

Rates last updated October 24th, 2017
Name Product Foreign Currency Conversion Fee (MC) Foreign Currency Conversion Fee (VISA) Overseas ATM Withdrawal Fee Overseas Cash Advance Fee Annual fee Product Description
Bankwest Zero Platinum Mastercard
0% of transaction value
$5
The greater of 2% or $4
$0 p.a.
Receive complimentary international travel insurance, access to a 24/7 concierge service and 0% foreign transaction fees.
ANZ Rewards Travel Adventures card
0% of transaction value
$0
$225 p.a.
Receive 40,000 bonus Velocity Points when you spend $500 on eligible purchases in the first three months.
28 Degrees Platinum Mastercard
0% of transaction value
$0
3% of the cash advance or $4 (whichever is greater)
$0 p.a.
Designed for travel, benefit from no international transaction fees on purchases and no currency conversion fees.
Bankwest Qantas Platinum Mastercard
0% of transaction value
$5
2% or $4, whichever is greater
$160 p.a.
Enjoy a high credit limit with complimentary travel insurances and earn 0.5 Qantas Points per $1 spent on eligible purchases.
Westpac Lite Card
0% of transaction value
$0
$108 p.a.
Keep credit card costs low with a maximum credit limit of $4,000 and no foreign transaction fees.
Bankwest Breeze Platinum Mastercard
0% of transaction value
$5
Greater of 2% or $4.00
$99 p.a.
Offers an introductory balance transfer rate of 0% p.a. for 13 months with a 2% BT fee, plus platinum perks.
Bankwest More Platinum Mastercard
0% of transaction value
$5
2% or $4, whichever is greater
$160 p.a.
No fees on overseas ATM withdrawal, no foreign transaction fees and earn 75,000 bonus More rewards points.

Compare up to 4 providers

Now that you’re aware of all these fees and considerations, you might wish to make a simple cost analysis comparing your options in relation to your online shopping needs and habits. Finally, shop away and shop smart!
Check out the 50 top online shopping sites in Australia

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Sally McMullen

Sally McMullen is a journalist at finder.com.au who is a credit cards, frequent flyer and travel money expert by day and music maven by night.

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