Forex markup

A forex markup is the extra amount that a bank, card company or transfer company adds to the exchange rate when it converts your money from one currency into another. Forex is short for foreign exchange. The markup is not shown as a separate fee. It is hidden in a rate that is worse than the real rate.

The real rate, often called the mid-market or interbank rate, is the rate banks use when they trade currencies with each other. It is the rate you see when you search for an exchange rate online. A customer is almost always given a worse rate than this.

Here is how it works in general. Say the interbank rate is ₹95 to one US dollar. The provider converts your money at ₹97 to the dollar instead. For each dollar, you pay ₹2 more, which is a markup of about 2.1%. The provider may also charge a fee that it shows openly. Together, the markup and the fee are the real cost of the conversion. Indian credit cards usually charge a markup of 1.5% to 3.5% on payments abroad. Unlike a markup hidden in the rate, the card company shows this markup as a separate charge on the statement, and 18% GST is added to it.

Take, for example, a person who pays by card in a shop abroad. The card machine may offer to charge the card in rupees instead of the local currency, and this choice usually comes with a worse rate. Some neobank cards are sold as zero-markup cards: they add no markup of their own.

Consider a freelancer in India paid in dollars by a client abroad. A cross-border payment collection service converts the dollars to rupees, and the rate it uses decides how much she actually receives.

Say a company buys from suppliers in several countries. A multi-currency account lets it hold dollars and euros, and convert only when the rate suits it.

Transfer companies, such as those behind a remittance app, often compete by showing the real rate and the fee up front.

How is a markup different from a transfer fee? A fee is shown as a separate amount, so a customer can compare it. A markup is hidden in the rate, so a customer must compare the rate with the real rate to see it. In a long chain of correspondent banks, each bank may also deduct its own fee.