Companies like Square, iZettle and Stripe are basically the merchant and are forwarding their merchant account to other customers (with a special agreement obviously).

With a normal merchant account you'll accept Visa, MasterCard and then some of the more regional networks (Maestro, Discover/Diners Club (although acquirers are now automatically including this more and more), China Unionpay, Interac etc.). They will then often automatically sign you for American Express but the difference is that they apply on your behalf to Amex for a merchant account (Amex pays acquirers for doing this), after this the merchant is a customer of Amex. There a few exceptions like the new Optblue scheme but this is generally what happens.

How does the transaction present to the issuer? I know most US cards now have foreign transaction fees rather than currency exchange fees, so I had wondered if Visa/MasterCard present the transaction in the card's currency to the issuer. (...which would make the bank's additional 2% above the Visa/MC rate a true profit grab rather than a value-added service.)

Base of operations is a long story, but here goes:

1. China Unicom HK- it's a China Unicom SIM issued from HK. I get HK and mainland numbers, and I can make calls in the mainland for HK$0.45 (Guangdong)/HK$0.60 (elsewhere) per minute. Internet is HK$78/500MB unfiltered, lasts a week on the mainland. In Taiwan, Japan, and Macau it's HK$68/day. And it can be reloaded with a Visa/MasterCard issued outside HK- or PayPal. I just sold one to a classmate going there for the first time who wanted cheap, easy-to-use unfiltered internet on his phone.

2. China Mobile used to. They closed the option to new customers half a year ago, but I still have it. 88RMB/day for unlimited data usage in HK/Macau/Taiwan/S.Korea/Japan/Singapore/Malaysia/Thailand/Philippines/Indonesia/Pakistan. Now it's 30RMB for 50MB data in S.Korea. (Yes, it suffers from the usual mainland internet restrictions but it's quicker than T-Mobile roaming).

(sorry for the off-topic)

It's ok. I'm wondering is the T-Mobile plan filtered over there too? I wasn't aware that the 3 HK SIMs would be unfiltered, but that might be an option for me in the future. I did have one a few years ago, and I was intending to use it for roaming around China, but I lost the account information and just let it expire. Now the only card I actively maintain is the Taiwan Mobile one since it's such a pain to get. Furthermore, Taiwan Mobile's card doesn't lose its balance as long as you recharge once every six months (300 TWD minimum). ^

Next means 2015, right? I've heard the EU is fed up with roaming. In US, you cross the state line into another state, but still the same country; in EU, you move about the same distance and you are foreign... Kind of interesting.

Don't forget Wells Fargo, who denied my Propel World application... I think your reasoning in the second paragraph totally make sense.

Good question... Visa should have done the exchanging, right? So, maybe you're right that transactions are presented in local currency.

But I think there is still a difference between authorized and posted. The conversion should be done by Visa/MC when it is posted, so at the time of authorization, there can be things done to deny DCC, right?

And, Visa/MC can always know USD is charged in China, so a no-DCC list can be maintained by them.

Though only China Mobile has operation in HK...

Any foreign SIM cards would have unfiltered internet in China. I am using one right now to have stable connection on my Android device for Gmail pushing to work properly.

It depends on the APN of your phone. If it is not cmnet or 3gnet, you get IPs out of China.

It's like a VPN that is always on. Or like proxy, but un-censored (I've tried proxy servers on IE, and youtube.com still got blocked because the data exchange with proxy service is not encrypted, so the string of youtube.com is seen by the firewall anyway).

Here is the China Unicom HK homepage. Very handy card to have because they have normal 3G, and even though they tell you to set their 3gnet APN you still get unfiltered internet.

there was a typo, I meant "thought, not though"...

It's interesting 3gnet would give you unfiltered internet. Would you try Google "what is my IP" and see whether it's a HK IP or China IP?

I don't know enough about how the payments run across the Visa/MC networks to tell what happens. If Visa/MC present the transaction in the cardholder currency to the issuer, then the 2% beyond the 1% Visa/MC rate that most banks impose is pure profit with or without DCC. Is my understanding incorrect here?

With DCC, you'd still get hit with the foreign transaction fee if your card has one, and the issuer has an interest in you accepting DCC if the card has a FTF because there would presumably be no conversion costs for the issuer. So, in a case of holding a card with a 3% FTF, the bank would get a 2% profit on all purchases made overseas and a 3% profit if you accepted DCC since Visa/MC wouldn't be tacking on a 1% conversion fee. In the case of a 0% FTF the issuer doesn't eat the 1% Visa/MC conversion fee if you accept DCC. Under this scenario, it's in the issuer's interest to have the cardholder accept DCC.

I think such an opt-in "Do not DCC" list would have to be a mechanism created by Visa and MasterCard. I think this could solve a lot of problems for all involved. For those of us who are militant about avoiding DCC and will not hesitate to force a chargeback to the merchant, we could opt-in to avoid confrontations with merchants. The issuers would stop getting calls from us and avoid a lot of paperwork. Merchants who wished to continue screwing their ignorant customers with DCC could continue to do so. Almost everybody wins. The problem of course is you'd never get the acquirers to play ball. They're currently on the take as part of the DCC scam yet they bear NO RESPONSIBILITY when a merchant is faced with a full Reason Code 76 chargeback. It's on the merchant in that case.

The only reason the merchants start accepting DCC is because the vast majority of customers are ignorant that they're getting ripped off when accepting DCC charges and far fewer go through the procedure to file a dispute with the issuing bank. I imagine an infinitesimally small percentage end up in a chargeback situation where the merchant has to deal with the mess. That's why educating everybody who's likely to encounter DCC about DCC and how to avoid DCC is essential. It's also critical to get them to follow up with their banks and dispute transactions where they got forced into DCC.

I think yes, the 2% is pure profit. Because at that time, issuers need to do nothing, right? I don't think there is extra work associated with oversea CC purchases, on the issuers' end. It is not like receiving international wire transfers, right?

Having a No-DCC mechanism in Visa/MC can stop all the hassle after we get DCCed. It's like a Identity Lock which prevent things from happening at the first place.

I have never tried that, but if I go to Ireland for a month, and gather all the DCC slips together, then request 76 chargeback with Chase, what would happen? I need to manually track the Visa/MC rate though...

I'm a bit fuzzy on all the details as to time and place, but a few years ago mc/visa I believe tried to write into their merchant's agreements a provision requiring all transactions be done in local currency, as effective at that might be (after all their regulations require any valid card be honored). At least one of the payment processors sued that they couldn't do that and won the case. After that mc/visa hit on the idea because they make profits on foreign currency exchanges as does your bank, of converting their foreign currency fees to foreign transaction fees so it's now no skin off their rear ends whether one is dcc'd or not.

Chase would likely give you a courtesy credit below a certain threshold automatically. A larger purchase like at a hotel or department store would likely result in a chargeback situation. I don't know at what point they'd say, "Enough is enough!" If they started getting a flood of complaints from people like us about getting hit with DCC, perhaps they'd take the case to Visa. I imagine that by the numbers Chase is one of the largest issuers of Visa cards in the world, so you would think they'd have some pull.

Furthermore, with Chase it's really easy to see exactly by how much you got ripped off with DCC. The posted transaction amount without DCC is the Visa rate on the posting date. So, you multiply the Visa rate on the transaction posting date with what the price was in local currency and subtract that total from the amount that shows up on your statement.

It's my understanding that in the case of DCC that Visa and MC would lose out on the 1% conversion fee they charge the issuer, so there's a slight disadvantage for Visa/MC when customers use cards overseas and the transaction doesn't use the Visa/MC rate. However, since Visa/MC rates are typically competitive compared to the interbank rate, I don't consider a 1% conversion fee particularly usurious if the banks decide to pass it on to the customer.

You are absolutely correct however that almost all issuers have switched to FTFs from the language of currency conversion fees. This allows them to charge a fee regardless of whether or not they ever deal with a currency conversion. It doesn't matter whether or not the customer accepts DCC; the FTF happens either way. This is a nuance that is lost on almost all of the articles that I've seen on of topic of whether or not to accept DCC. There are those who say, "Never accept DCC in any case." That's the correct mentality. However, I cringe when I read, "Well, it depends on whose fee is lower." This article is a great example. The author says:

Wrong. Wrong. Wrong. Wrong. Wrong. By definition, a FTF will be levied on any foreign transactions, regardless of the currency denomination of the transaction. So even in the person faced with this choice follows this advice exactly and "correctly" chooses DCC because the fee is only 2% vs. the issuer's 3%, the customer will have just paid a 5% surcharge for that transaction. Never ever accept DCC, especially if your card has a FTF. The choice is abundantly clear if your card charges a FTF.

As I said in my post earlier, I think the payment processors have the most to gain from DCC because they don't shoulder the responsibility of a chargeback in the case of a customer feeling cheated. That's on the merchant. I think the payment processor also gets the bulk of any profits derived from the DCC markup. I think it will be difficult to get rid of DCC if you look at the breakdown of the winners and losers with DCC:

• Merchant: WINNER (mostly) - The merchant will get to keep some of the profits from the DCC markup but could lose out whenever there is a chargeback because of forced DCC. Since chargebacks are rare, the merchant mostly wins.
• Payment Processor: BIG WINNER - The payment processors are the ones we need to shame here. They enable DCC or sometimes force it upon an unsuspecting merchant. They extoll the benefits of being able to provide customers with a value-added service blah blah blah... However, in the case of a chargeback the processor still wins. They throw the hot potato to the merchant and say, "Well, no... you had to give the customer the choice, and you didn't so it's your problem. Catch!"
• Visa/MC: NEUTRAL - In the case of DCC, they're not doing any conversions, so the 1% fee isn't applied. While there might be some small profit within the 1%, the rates are usually competitive, so it's not that much higher. They stand to lose as more and more customers get fed up with the DCC games/FTFs and either pay cash or use AmEx/Discover where possible. It is clear that they have an incentive to make sure at the very least that DCC is disclosed and offered as a choice. In an ideal setting they'd want to prohibit the practice because we all know how some merchants are dishonest when presenting the "choice".
• Card Issuer: WINNER (slightly) - If the issuer charges a FTF, the issuer will get an extra 1% of the transaction amount since the transaction comes across as the cardholder's currency. The card issuer stands to lose if the issuer gets complaints about customer's unwillingly getting hit with DCC and decides to issue a credit rather than a full chargeback. There are likely costs behind the scenes to file a chargeback as well. But just like in the case of the merchant, very few cardholders will actually file a chargeback related to DCC, so the issuers don't yet have an incentive to ask Visa/MC to prevent DCC.
• Customer: BIG LOSER - The bottom line is when you accept DCC you pay more for the same goods and services you would have received had you not accepted DCC. a 3-5% surcharge isn't worth it just to know exactly how much you paid in your home currency.

Majuki - I agree with card processor, merchant and customer.

Visa/MC: The cynical side of me thinks Visa/MC tacitly approves this. They lose on the 1% foriegn currency conversion charge and currency spread, but the charge is not very high and the spread is very thin (vis-a-viz Unionpay or even retail banks). But they gain higher merchant acceptance and increase local interchange (.18% http://en.wikipedia.org/wiki/Interchange_fee).

Furthermore there is a network effect to increasing merchant acceptance - the more merchants accept V/MC abroad, the harder it is for cardholders to avoid them while travelling if they become more aware of its potential to cost them more.

Card issuer: depending on fee structure, they are pretty negative. At least for here in HK where they were happily collecting 0.95% bank foreign currency conversion fee in addition to V/MC's 1% until DCC came about. Now they are dealing with more and more DCC cases (as more and more cardholder becomes aware they're being scammed, esp in HK given our proximity to China without being part of it for credit card purposes).

I think issuers in HK will like to have DCC switched off either for their cards if not system-wide. They've been doing all sorts of overseas spend promos which explicitly exclude DCC - gets us in HK to fight DCC collectively.

I agree that the issuer could be negative depending on whether or not the issuer charges a foreign currency conversion fee or a foreign transaction fee. Most, if not all, issuers in the US have switched to FTFs for those cards that have them, so you get nicked with the fee whether or not you accept DCC. I know you have indicated that your HK cards impose a conversion fee rather than a transaction fee, so I think they would have more of an incentive to file a chargeback than issuers who charge a FTF.

It's still unclear on the Visa/MC side. Does the option of DCC really increase merchant acceptance? As people become more aware of DCC or realize that using a card would cost 3-7% more over cash, wouldn't this steer people toward using cash for purchases, opposite of what Visa/MC want?

It's similar to gas stations here in some states that allow cash "discounts" over credit prices. With the current price of fuel one pays about 3% more for the credit price. This is particularly common in New Jersey where all stations are full service, and I see most people paying cash for fuel. The mentality is cash is cheaper than credit/debit. That mentality could spread to overseas purchases which is exactly what Visa/MC don't want.