Key Challenges in Using International Credit Cards in India

Indian consumers are participating in a global economy through various means, including travel, education, and e-commerce; as such, the acceptance of international credit cards is considered mandatory for Indian consumers. In addition, although there are numerous banks issuing international credit cards in India, many consumers report that when using their cards internationally, they experience transaction failures, have inconsistent acceptance, and incur higher costs associated with using their credit cards, as well as difficulties in the overall experience.

These issues are not standalone, nor are they associated with one particular issue, but instead arise due to the interaction of a variety of market forces, including merchant risk policies, institutional banking regulations, global compliance standards and the limitations of technology regarding payment systems. Therefore, an understanding of these challenges must be seen from a system-wide view versus from the perspective of a particular stakeholder.

The purpose of this report is to identify and describe the main barriers to the use of international credit cards by Indian consumers, and to propose solutions at the consumer, regulatory and technological levels that will help increase acceptance rates and therefore, improve the overall user experience.

 

1. Merchant Acceptance Challenges

Inconsistent Acceptance of Indian-Issued Cards

One of the most common problems faced by Indian consumers is unpredictable card acceptance. A credit card that works seamlessly in one country or on one international website may fail repeatedly on another, even when both merchants claim to accept the same card network, such as Visa or Mastercard.

This inconsistency is largely due to risk-based filtering by international merchants and acquiring banks. Many global merchants classify cards issued in certain geographies as higher risk based on historical fraud patterns, chargeback ratios, and regulatory complexity. Indian-issued cards, despite significant improvements in fraud controls, are sometimes grouped into these higher-risk categories.

As a result, transactions are declined not because the card is invalid or the customer lacks funds, but because the merchant or acquiring bank chooses not to accept the perceived risk.

Merchant Category Restrictions

An additional significant obstacle associated with merchant category code (MCC) limitations imposed on Indian banks is the decision to treat some merchant categories, such as online gaming, cryptocurrency exchanges, adult content service providers, and several international SaaS tools, either as limited or non-compliant by most Indian issuers. As such, the blanket rejection leads to issues with legitimate consumers attempting to use a service.

Indian consumers become aware of the restrictions on these types of merchants following their refusal to complete a successful credit card payment, and not having the slightest amount of information available as to why.

Online Versus Offline Acceptance Gap

Credit Cards Issued in India Generally Have Better Transaction Success Rates at Physical Places of Business Overseas Compared to International eCommerce Transactions. The Difference is Because Chip and PIN Transactions at POS Terminals Overseas Are More Aligned with Indian Security Requirements Than Electronic Payment Authentication Procedures, Which Use Various Authentication Methods That May Not be Compatible with Indian Legal Requirements for Electronic Payments.

Indian Consumers Experience International eCommerce Transaction Failed Attempts Even Though They are Able to Successfully Use Their Payment Card at Hotel Properties and Retail Stores Located Overseas.

 

2. Regulatory and Compliance Issues in Banking

Regulatory Environments in India Are Very Conservative.

The Reserve Bank of India Has Taken a Strict Approach to Consumer Protection as It Relates to Electronic Payments, and While This Has Led to a Decline in Domestic Payment Fraud Attempts, it has also resulted in Adding More Friction to International Payment Transactions.

Many international cards issued in India have international usage disabled by default, requiring customers to manually enable the feature through mobile banking apps or customer support. Even when enabled, transactions are subject to stricter scrutiny than domestic payments.

This conservative approach leads to a higher number of false declines, where legitimate transactions are blocked due to precautionary risk controls rather than actual fraud indicators.

Liberalised Remittance Scheme (LRS) Oversight

Under the Liberalised Remittance Scheme, the Reserve Bank of India allows Indian residents to remit up to USD 250,000 per financial year for permissible transactions. This limit also covers international credit card spending.

Banks must track, report, and monitor such spending, so many issuers set internal sub-limits well below the official LRS cap. Most consumers do not clearly understand these internal thresholds.

As a result, high-value international transactions may fail unexpectedly, even for customers with strong credit profiles and sufficient credit limits.

Issuer-Level Over-Correction

To avoid regulatory penalties, some banks adopt overly cautious internal policies, such as blocking international usage after a single failed transaction or requiring repeated confirmations for foreign payments. While these measures reduce regulatory risk for banks, they significantly degrade the customer experience and undermine confidence in international card usage.

 

3. Authentication and Security Barriers

Mandatory 3D Secure and OTP Dependence

India requires strong customer authentication for card-not-present transactions, primarily through OTP (one-time password) capabilities. Although a great method for preventing fraudulent transactions, OTPs may conflict with how foreign merchants authenticate their customer transactions.

The trend among international merchants is to adopt frictionless methods of authentication, such as device fingerprinting, behavioural analytics, or biometric authentication, rather than requiring customers to enter an OTP. Because of the lack of an OTP authentication method, some merchants may not be able to support Indian OTP workflows, resulting in failed transactions when customers want to authenticate.

Delays in OTP delivery, including delays in the receipt of an OTP, roaming restrictions, and network failures, create a higher rate of transaction failures for Indian consumers who are travelling outside India.

Mismatch with Global SCA Standards

In regions such as the European Union, Strong Customer Authentication under PSD2 is implemented differently from India’s OTP-centric approach. This lack of harmonisation means that Indian cards may not integrate smoothly with European authentication flows, causing merchants to incorrectly flag them as non-compliant.

Such mismatches contribute to higher decline rates, particularly for online purchases and recurring payments.

Recurring and Subscription Payment Failures

Indian regulations require explicit consent, pre-debit notifications, and periodic re-authentication for recurring card payments. Many international platforms do not support these requirements, leading to frequent failures in subscription renewals for services such as streaming platforms, cloud software, and digital tools.

This not only disrupts services but also reduces trust in Indian cards for long-term international usage.

 

4. Technological Infrastructure Challenges

Legacy Banking Systems

Numerous banks in India are still dependent on outdated core banking and credit card management systems, which don’t offer any advanced features (such as AI-enabled fraud detection), real-time risk scoring and adaptive authentication.

Consequently, many of these banks rely on static rules to automatically decline transactions rather than having intelligent systems that can identify actual transactions versus fraudulent transactions.

Limited Adoption of Tokenisation

In order to encourage tokenisation of sensitive information, it is being implemented in India, but not yet at a consistent level for international transactions.

Many of the international companies still receive the raw data from an Indian issued card when processing an Indian customer’s credit/debit card, thereby increasing the perceived risk (and therefore the processing decline rates).

Poor Transparency and Customer Communication

A significant source of frustration to customers in India is that there is often little to no communication regarding a failed international transaction. When the card is declined, the customer receives a vague ‘declined’ message without any supporting information that would help them to address the problem immediately.

Without real-time explanations or in-app controls, consumers are left guessing whether the issue lies with the merchant, the bank, or regulatory restrictions.

 

5. Cost and Foreign Exchange-Related Barriers

High Forex Markup Fees

Indian international credit cards typically carry foreign exchange markup fees ranging from 2% to 3.5%, along with GST on the markup. In some cases, dynamic currency conversion further inflates costs.

These charges make international transactions expensive and discourage consumers from using their cards abroad, especially when compared to global fintech alternatives offering lower forex costs.

Lack of FX Transparency

Consumers often face uncertainty regarding exchange rates, final billed amounts, and settlement timelines. Differences between authorisation and final billing amounts can create confusion and erode trust in international card usage.

 

6. Consumer Awareness Gaps

Not all challenges stem from systemic issues. A significant number arises from a lack of consumer awareness. Many users are unaware of the need to enable international usage, understand MCC restrictions, or anticipate authentication challenges while travelling.

These knowledge gaps lead to avoidable transaction failures and reinforce negative perceptions about international card reliability.

 

7. Solutions to Improve Acceptance and User Experience

Solutions for Banks and Issuers

Banks should move toward risk-based authentication models that allow low-risk international transactions to proceed with minimal friction. Smarter MCC controls, customer-configurable settings, and real-time decline explanations can significantly improve approval rates and user satisfaction.

Regulatory and Policy Improvements

Greater alignment between Indian authentication standards and global SCA frameworks would reduce friction without compromising security. Clearer communication around LRS tracking and standardised issuer limits would also improve transparency.

Technological Enhancements

False declines can greatly affect the customer experience and result in lost sales for merchants. Widespread use of tokenisation, AI-driven fraud detection, and real-time transaction monitoring will not only increase security but also help prevent false accepts by increasing the chances of catching fraud in the moment and reducing the likelihood of a fraudulently approved transaction.

Consumer-Focused Strategies

Consumers may also consider card options with minimal foreign exchange markup, prior notification of international travel policies, network diversity in their payments, and understanding issuer regulations before travelling abroad or subscribing to foreign services.

 

Conclusion

Indian consumers face several challenges when using international credit cards. Merchant risk policies, stricter regulations, inconsistent authentication methods, technological gaps, and cost barriers all contribute to the problem. Although these issues are complex, stakeholders can address and resolve them.

India can significantly improve global acceptance of its cards by aligning regulations with international standards. Modernising banking technology, educating consumers, and adopting smarter risk frameworks will also strengthen the ecosystem. These steps will help Indian consumers make payments abroad more easily and efficiently.

The future of international card usage by Indian consumers does not depend on issuing more cards. Instead, it lies in building interoperable, intelligent, and consumer-focused payment systems. Challenges Faced by Indian Consumers in Using International Credit Cards: An Expert Analysis of Acceptance, Regulation, and Technology