Hello All Singapore Stuff Team.

I would like to share with you a recent incident that I believe may have important consequences for your readers, and indeed all residents in Singapore, especially those who are active in online transactions on websites and apps.

Recently, I made an online purchase on Groupon’s Singapore website using a Citibank Visa credit-card. I have already received the product I purchased, and the overall experience was fine. However, a little later when I received the latest billing statement, I was shocked to find that Citibank had imposed an 8% “Currency Conversion Fee” on this transaction.

I am familiar with this fee, and have taken care to avoid it. Those of you who have made purchases from Groupon’s Singapore website before know that its contents are entirely local, and all prices are in Singapore Dollar terms, without any option to elect for payment in some other currency.

When I called Citibank to find out why they imposed this charge on this transaction, they replied that it was due to Groupon processing this payment overseas. I protested that this was outside my control, as Groupon’s Singapore website does not inform its customers where it was processing payments. They agreed to waive the charge, but warned that similar transactions in the future would incur such a fee. They even mentioned recently imposing this charge on an Uber transaction carried out on a mobile-phone app, because the latter too had processed the payment overseas.

I was very upset, as I now have little faith on which online transactions would not incur such a fee. If I had gone to, say, Amazon’s website in the United States, the option to elect payment in another currency was clear, and I could easily avoid this painful 8% levy. However, there is now a chance of suffering this penalty even when I make online purchases on local websites and apps in Singapore Dollar terms.

I was so troubled by this incident that I called a friend of mine in the United States to further discuss this matter. As a retired global senior management member of one of the big credit-card companies, he shared with me his insights on my case.

Firstly, he explained the process by which Visa bills banks for using their credit-card for overseas foreign-currency transactions. For example, if I were to go to the United States, make a purchase there, and pay in US Dollar terms, Visa will bill this transaction to my bank in Singapore, which issued the Visa credit-card to me, in Singapore Dollar terms, plus a 1% fee. Note that Visa makes a profit from the US Dollar to Singapore Dollar conversion. Furthermore, my bank in Singapore will bill this transaction to me at a different rate, as they too will make an additional profit from US Dollar to Singapore Dollar conversion. So, the final Singapore Dollar amount that I pay reflects the cost of the purchase, Visa’s foreign-exchange profit, Visa’s 1% transaction charge, and my bank’s foreign-exchange profit.

However, if the shop in the United States offered to me the option of paying in Singapore Dollars at their US Dollar to Singapore Dollar conversion rate, and I accept, then Visa will only charge my bank 0.8%. Also, my bank will not be able to make foreign-exchange profit. So, in order to make up for this shortfall, banks in Singapore are allowed to charge this 8% “Currency Conversion Fee”. Note that you should never elect paying in a non-local currency, as the all-in margin of banks in Singapore tend to be under 5%. Secondly, my friend expressed surprise that banks in Singapore were allowed to get away with charging 8%. He said that, as far as he knows, such a charge, if permitted by the authorities, would be under 3% in any other country, which at that level would encompass the 0.8% Visa foreign-currency
transaction fee, and a 2.2% foreign-exchange profit for the bank.

Thirdly, he gave a guess as to the reason why Citibank decided to start imposing this fee on local transactions processed overseas. He said that in theory, merchants like Groupon are not allowed to process local transactions overseas, as it would incur an additional 0.8% charge for the banks. However, to remain competitive, banks usually turn a blind eye to such infractions, and absorb this additional 0.8% cost. Unfortunately, he opined that as banks in Singapore were allowed to get away with this 8% Currency Conversion Fee, rather than cut off Groupon to force them to stop processing local transactions overseas, it made better business sense for Citibank to pass the buck on to the credit-card holder.

After hearing this analysis, which may or may not be correct, I went from upset to angry. I felt it would have been fair if banks were allowed to levy a Currency Conversion Fee on transactions paid in non-local currency, as I had the choice of avoiding such transactions. I felt it would have been fair if banks were allowed to levy this fee at a 3% rate, as it was a more accurate reflection of their opportunity costs. However, it is a downright case of daylight-robbery and price-gouging when banks here are allowed to levy a super-high 8% charge on local transactions processed overseas which consumers here have no control over!

I sincerely hope the Monetary Authority of Singapore would get off its ass, and examine the fairness of the 8% level of this Currency Conversion Fee, as well as whether it should be imposed on local transactions in local currency terms, even if processed overseas. Meanwhile, I will stop using my Citibank Visa credit-card until this issue is clarified or resolved.


Allen Tan
A.S.S. Contributor

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