Originally Posted by
JEFFJAGUAR
No. Like so many bank fees it is there to rip more money from their customers. Many fees have no basis in reality other than as a way to pad the banks' profits. The ftf is one of them as the banks have nothing to do with currency fluctuations or risks inherent in them (which was the original reason given for foreign currency fees). The banks do nothing in a credit card transaction in a foreign currency. The conversion is done by mc and visa who assume all the risks of currency fluctuations and to a degree might justify the 1% fee mc and visa place on foreign currency conversions.
Extending that fee to all foreign transactions, even thouse involved with dcc or those processed outside the USA in the case of USA banks was a direct response to dcc in a way. It is one of the biggest rip off fees banks pull and quite frankly if I were a congressman, I woujld be pushing legislation to prohibit this fee (as well as make fees for overdrawn accounts, exceding credit limits on credit cards much more reasonable).
That's right. Somewhere along the way issuers in the US switched from currency exchange fees on cards to foreign transaction fees. So even if the customer accepts DCC or the case of an online merchant whose acquirer is overseas, you still get whacked with any FTF that your card imposes.
The bottom line is that Visa/MC impose a 1% currency exchange fee and pass this on to the issuer when a currency exchange happens. The issuer then typically adds a 2% markup. I tend to think customers just bend over and take it when it comes to overseas transactions, assuming that's just the price one pays for traveling abroad.
I personally find the 1% fee that Visa/MC impose to be acceptable due to the costs of handling different currencies. I can even somewhat justify AmEx's rate of 2.7% for personal cards with a FTF since their operations are smaller worldwide. However, I would still contend AmEx's true cost of conversion is much lower. I understand that there are risks converting currencies, and there are some currencies that fluctuate relative to one another than others such that the 1% fee is reasonable. It would be far too complicated to have a list of different exchange rates for different countries, so they set the bar at 1%. I'm fine if banks pass along this 1% fee to me as the customer but only if the conversion actually takes place. In the case of DCC or a foreign acquirer pricing in USD, the issuer that charges 3% is pocketing the entire amount.
On the other hand, I've described DCC exchange rates as usurious, which they are. I've seen anywhere between 3.95-4.99% as the offer, but the high exchange rates are necessary in order to pull off DCC successfully. I would have little problem with DCC or not cringe as much if the markup were 1-2%, but the acquirer in those cases wouldn't be able to offer DCC profitably. The acquirer certainly wouldn't be able to do some profit sharing agreement with the merchant. The result of this profit sharing arrangement and the higher currency exchange risk that a single acquirer assumes results in a rip-off exchange rate.