Originally Posted by willie--wonka
I just got a notice from Citibank, too, that they are getting ready to institute a 3% conversion charge.
My understanding of the increase from 2% to 3% is simply a result of the way Visa/MC account for the currency conversion. In the past, the rate that Visa/MC used was wholesale + 1%. Then Citi or whoever would add on an extra 2% for an effective 3% rate.
The new method is that Visa/MC rate is wholesale, and they bill the bank for their share of the conversion charge in bulk at the end of the month. Then the bank charges a 3% conversion, pockets most of it except for whatever percent they have to kickback to Visa/MC.
You can see this might be true from the language on the cardholder agreement. Old language:
Currently, their regulations and procuders provide that the currency conversion rate they use is either (1) a wholesale market rate or (2) a government-mandated rate in effect one day prior to the processing date. MasterCard and Visa increase this conversion rate by one percent and keep this increase. We increase the conversion rate provided to us by MasterCard or Visa by two percent and keep this increase.
New language:
MasterCard currently uses a conversion rate in effect one day prior to its transaction processing date. Such rate is either a wholesale market rate or the government-mandated rate. Visa currently uses a conversion rate in effect on its applicable central processing date. Such rate is either a rate it selects from the range of rates available in wholesale currency markets, which may vary from the rate it receives, or the government-mandated rate.
Note that in the new language, there is no mention of Visa/MC increasing the rate by 1%. We'll see what actually happens. I'm especially curious as to what will happen with MBNA because I haven't seen any new T&C from them. Are they going to go down to 0%?