Overseas Shopping is Expensive Yet Cheap – Here’s Why

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Shopping is always a good idea

I really love US Black Friday deals. And not just me, there are many other Singaporeans who loves it too. The other day I wanted to custom build a desktop (my specs are here btw: http://pcpartpicker.com/list/) and it turned out to be a good US$1.2K on Amazon (Cyber Monday deals!) so I decided to check it out at Sim Lim Square prior to paying.

My gawd, the total cost was a shocking SG$3.8K :shocked:

Certain items are much cheaper in the United States. But do you know banks make money off you by imposing transaction fees and marked-up conversion rate on your local currency? In fact, 95% of Singaporean uses Paypal or credit card to pay for their overseas purchases. And these are fees that can be totally avoided.

How much does Paypal charge you?

PayPal is typically higher than banks/credit card companies, and they are sneakily hiding what its really costing you to use their conversion rate. The official statement is that it is free as a buyer to buy stuff, be it Singapore or overseas. The only catch here is that when you buy items overseas, currency conversion applies.

But what PayPal don’t show is that they charge a 2.5% processing fee on top of the exchange rate determined by your bank if you choose to pay for the purchasing using Singapore currency. You will have to compare with local banks to determine the most economical way to pay. The general sentiment is NOT to use paypal – which we seek to find out whether this is true.

How much does your bank charge you?

If you choose to pay for your items in USD or any other foreign currency, the bank that issued your credit card will perform the currency conversion for you instead. Obviously, this is not going to be free. Figuring how much each bank charges is a little trickier. You’re usually charged a combination of fees when you make an overseas purchase.

The following conversions happen when you pay

(i) Transaction in US dollars = converted to SGD

(ii) Transaction in other currencies = converted first to USD and then to SGD

One exception is UOB, which converts USD and Australian dollars to SGD directly. The exchange rate is usually determined by Visa, Mastercard or AMEX or banks. This double currency conversion = extra costs = more fees paid. Visa usually charges 1% while MasterCard can charge between 0.2% and 1%. To make things even more confusing, the fees vary between different banks. But generally, you can expect the total cost of using Visa and MasterCard credit cards in foreign currency transactions to be about 2.2% to 2.5% altogether. (The actual foreign exchange fee is much lower, and can range from 0.5% to 1.5%.) Amex, on the other hand, charges a flat fee of 2.5%. (source: moneysmart.sg)

All major local banks in Singapore

All these fees paid to the banks for nothing

(Source: OCBCCitibankBank of ChinaUOBStandard CharteredDBS)

How much does RateX charge you?

Using our browser extension, you pay zero fees and the real exchange rate – Sometimes this is called the mid-market rate, interbank rate and spot rate amongst other things. The real exchange rate is the mid-point between the BUY and SELL rates on the global currency markets and it constantly fluctuates. It’s the rate you find on Reuters, Google, finance.yahoo.com, etc. and the rate that TransferWise uses. As we use a peer-to-peer system for many of our transfers, we simply take in rate data from these sites and apply it when converting your money.

Why are we able to do so?

We use discounted gift cards from our partners and pass on the savings to you guys! Gift cards are available at a discount in secondary market, and we can only benefit if purchased in bulk. By helping you (and ourselves, again) we are able to obtain huge savings using this model – allowing you to pay only what you see on Google and nothing else.

Are you hiding some of the fees associated and passing on to us? Like how banks make money off ignorant consumers.

Absolutely not! Our browser extension is 100% transparent and savvy shoppers like you can check on XE.com, Google Finance, Yahoo Finance before agreeing to our converted amount. We pass on full savings to you guys, and only earn a portion from the bulk discount offered by gift cards.

The Verdict

As you can see, RateX offers the best bang for your buck out there. We honestly strive to bring you the most savings we can afford to, and earn a margin to sustain our business. A consumer can save up to 7% (~5% fees and 2% from real exchange rate) using our extension to check out.

But if our value doesn’t entice you, we have the comparison between Paypal and banks too. The difference between paying cost using Paypal’s currency conversion and letting the bank do it for you isn’t great – but there’s a good reason NOT to let Paypal do it. There’s nothing stopping your bank from charging you certain fees anyway, such as the Visa or MasterCard transaction fee and cross border transaction fees. Since you’re going to have to pay for a portion of the fees, it makes no sense to pay for PayPal’s 2.5% fee on top of all that.

Slick huh.