The currency transaction fee "keep them honest" thread...

Discussion in 'General Discussion | Travel' started by Global Explat, May 27, 2012.  |  Print Topic

  1. Global Explat
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    Global Explat Silver Member

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    It has always concerned me that unseen fees can be embedded in foreign currency charges in credit card accounts. The language below, for a card that doesn't explicitly advertise a percentage transaction fee, could mean anything:


    Clearly they highlight that they'll mark up your transaction if your foreign vendor has a currency conversion system independent of Amex, but the "wholesale interbank rates selected by American Express" seems to me to give them a lot of wiggle room to pretty much charge whatever they want.

    Given I'm in the UK for a while, I thought I'd go through an exercise to test the integrity of this system for various USD cards that I have.

    (a) Find receipts, charged in foreign currency.
    (b) Check USD amount charged for the transaction on credit card bill.
    (c) Divide (b) by (a)
    (d) Check mid currency rate for the end of day in question:

    http://www.xe.com/currencytables

    (e) Divide (c) by (d), subtract 1, multiply by 100.

    The result should be the ACTUAL percentage the bank has charged on the currency relative to mid market. When a bank adds an explicit, separate foreign currency fee, eg. 3%, that percentage should be added to the amount calculated above to determine the OVERALL percentage amount the bank has effectively charged on the transaction.

    Got to ensure to marry the timing of the mid currency rate to the correct day in question (in the example above it is the end of the previous business day).

    Back shortly with the first receipts....
     
  2. Global Explat
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    Global Explat Silver Member

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    The language in the first post came from my new Virgin Atlantic American Express card.

    One GBP transaction on this card: transaction date 5/25 was charged at a rate of: 1.57143

    I'm not sure if the "business day prior to the day on which the transactions are processed" means 5/24 (the day before the transaction) or 5/25 (the day before I saw the transaction hit up on my credit card).

    In any case, it could mean 1.56963 (5/24), or 1.56494 (5/25). ie either 0.115% currency expense, or 0.415% currency expense.

    Either one is not too bad- will run a few more in coming days to see how it averages out.
     
  3. Espan

    Espan Silver Member

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    Add me to the list of interested parties. I'm assuming that AMEX is a no-foreign trans fee card?
     
  4. Global Explat
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    Global Explat Silver Member

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    That's the Bank of America Virgin Amex. I have a few Chase Sapphire expenses I'll add shortly- that one's definitely s'posed to be a zero fx fee card....
     
  5. Global Explat
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    Global Explat Silver Member

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    A handful of Chase Sapphire GBP expenses:

    Data as follows:
    Transaction Date / Post Date / fx charged / xe.com fx rate (trans date)/ xe.com fx (post)/ difference 1 & 2

    15May / 16May / 1.61125 / 1.60256 / 1.59322 / 0.542% & 1.132%
    21May / 22May / 1.58410 / 1.57908 / 1.57762 / 0.318% & 0.411%
    21May / 22May / 1.58410 / 1.57908 / 1.57762 / 0.318% & 0.411%
    22May / 23May / 1.58480 / 1.57762 / 1.56898 / 0.455% & 1.008%

    So, in bold is what I think is the actual currency cost of using the Chase Sapphire card for each transaction. To be fair to Chase, reading through the Chase Sapphire card writeup, they do say:

    So Chase isn't making fees of the foreign transaction, but someone is......


     
  6. jbcarioca
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    jbcarioca Gold Member

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    American Express does itself execute many FX transactions, but in a number fo countries an agent does their clearance, and does the FX as they decide.
    For Chase, who do make the facts explicit, the MasterCard or Visa network FX rate rules. those usually are fairly good, but they are good moneymakers for MC and V also. The add on fees are explicit on those products on which Chase applies them.

    I am very interested in your findings because I suspect that you'll find on average a .40% markup or so above the typical interbank rate when dealing in GBP to US$. I would expect higher rates will apply for less widely traded currencies.

    Most of my personal transactions are in Euro, BR$ and US$ but I have cards in those currencies so i do not actually see these transactions. I have long wanted to know for certain.

    A long list of likes for you Global Expat!!!
     
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  7. Counsellor
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    That language is pretty common for AMEX cards, and I've seen it (mutatis mutandis) on other card's T&C as well. In my experience it simply means they're not required to shop for the lowest wholesale interbank rate -- but they are stilll required to use some wholesale interbank rate, and you can inquire which one they selected (i.e., they can't just "charge whatever they want").
     
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  8. LIH Prem
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    LIH Prem Gold Member

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    Why not just use the credit card charges calculator at xe.com?

    http://www.xe.com/ccc/

    I think you might want to use posting date instead of transaction date, but either are valid.

    -David
     
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  9. Global Explat
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    Global Explat Silver Member

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    Thanks for these insights.

    My gut feel was also that the charge by most of these providers, relative to mid mkt currency rates, was probably in the 0.25%-0.50% area, but wanted to put it to the test to figure out whether there is consistency there...
     
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  10. Global Explat
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    Global Explat Silver Member

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    Thanks for this. I do agree they can't exactly "charge whatever they want"..my language is pretty sloppy there. But "wholesale interbank rate" is quite vague. Its clearly not the mid market level in the fx dealer community. They still appear to add some percentage relative to the mid market rate- I'm curious to know what, approximately, that percentage is...
     
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  11. Global Explat
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    Global Explat Silver Member

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    Thanks David. This is interesting- I wonder why I didn't see this originally. Its basically doing the same calculations that my spreadsheet is doing (comparing the $ and % cost relative to mid market rates) - and thankfully getting the same results! ;) I probably would have used this if I'd known about it.

    But, with respect to which date is correct, I've just run a group of 15 receipts from the same vendor, between 6 April and 22May, all of which posted 2 calendar days after the transaction date. The card used was my Chase Sapphire Visa (same one referred to in post 5 above)

    I checked currency rates on:

    (1) transaction date,
    (2) posting date,
    & also a third category:
    (3) business day prior to posting date (as appears in some card T&Cs)

    The third category provides the most sensible & consistent results. I'll summarise my findings rather than type out all the data. Descriptive stats below for the calculated currency expense data, using categories for FX input as specified above.

    Average / std dev / hi / lo / range

    (1) 0.166% / 0.196% / 0.6134% / -0.145% / 0.7584%
    (2) 0.266% / 0.2642%/ 0.8533% / -0.0543% / 0.9076%
    (3) 0.269% / 0.174% / 0.5456% / 0.0665% / 0.4791%

    I say (3) has the most sensible results because: the data are all non-negative (clearly Visa isn't going to try to lose money), the standard deviation and range are both pretty tight. So, assuming there is some consistency in their approach, this seems to describe it better than simply posting date or transaction date.

    I'll add the earlier data to the the mix, but for this series it looks to me like Visa is generally charging less than 0.3% currency mark up for Chase Sapphire transactions in GBP.
     
  12. jbcarioca
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    jbcarioca Gold Member

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    There is a processing reason why that should be correct also. The lag between in-country transaction settlement and issuer card account posting is usually about 24 hours, thus "the day before the posting date" should give the most consistent results. Your findings are reassuring,
     
  13. Global Explat
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    Global Explat Silver Member

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    This is sensible. I also have cards in GBP (just a SPG £ card) and the usual ever-changing mix of 15-20 USD cards most milepointers probably have.

    As a US expat in the UK, I also get exceptionally good fx rates on USD into GBP, via my employer. I'd estimate it is at most 0.125% from the mid fx rate. (you can see why I'm cynical about "wholesale interbank rates" that are significantly wider than my own rate).

    Most of my expenses are in GBP. When I use my SPG £ card, the currency will have effectively cost me 0.125%. My SPG £ card earns 1 pt per £ (ie 0.625pts per $ - pretty measly by US standards I know). If I value SPG miles at 2c each, I will have net earned 1.125c of value from spend on my GBP card (0.625x2-0.125).

    If I were to use the SPG US$ card, I'll get 1 point per $. But there is a 2.75% currency charge (plus whatever the spread to "mid" is). So, if I value SPG points at 2c, I'm immediately underwater using my USD SPG card, even before counting how far from mid their fx rate is.

    This likely agrees with your rationale as to why you'd have local currency cards wherever you can. But it gets a little more interesting with "no foreign transaction fee" cards.

    If I use my Chase Sapphire card for my GBP purchases, and assuming the actual currency cost on that card is 0.3% (rounding up the numbers from post 11), and I value Chase Ultimate rewards points at 2c each, then I'm getting 1.7c of value from using that card for my GBP purchases.... ie even after this short analysis, I'm more inclined to use my USD Chase "no fee" cards instead of the local currency card....... But it is pretty dependent on what that actual fx markup is.....
     
  14. jbcarioca
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    jbcarioca Gold Member

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    Good points. I use Oanda for my own transactions.
    http://fxglobaltransfer.oanda.com/

    I did spend a few decades as an expatriate, much of which was as a banker, later as a consultant to banks. I was never an FX trader myself but a few FX desks did report to me. Partly that is why I have always shared your wont to analyze.

    The points below I think are valid. However, it is good to remember that international transactions are consistently much more profitable to card associations and issuers than are domestic ones. Much of that is due to fees that are disclosed but there is also the wholesale trading profits that accrue to the association and are not disclosed. You are doing a good service by analyzing those.

    A few points:
    1. published mid-rates are never accurate, but they're always precise, and usually workable subsititutes;
    2. Even during a trading day there is often wide fluctuation, especially at times which major settlement activity is taking place (month end, quarter end, year end). Some of those are predicable but active traders have elimiated most/all of the predictable spreads, thus leaving only volatility.
    3. For some ATM networks and some credit cards (American Express, Discover, Diners, JCB) the arrangements for FX are done by internal trading or by contract with banks. Those contracts are semi-public but rarely voluntarily disclosed. I am under NDA on a couple of them). Cirrus=MasterCard, Plus=Visa and Pulse=Discover. ATM network FX rates will be the same as their parents rates will be. It is very rare, if my information is correct, for these rates to deviate from typical large, safe bank interbank rates by more than 40bp.
    4. The less active trading is, the higher the spread will be (other things remaining equal). Many major currencies are subject to unusual movements and serious intervention every day so card transactions will alternate from great to abysmal deals even within a day, including RMB, BR$ and most others.
    5. Thus these currencies probably will consistently give the best spreads
    €, GB
    £,
    ¥, US
    $
     
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  15. Espan

    Espan Silver Member

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    Lucky (or not) for me, of late I've been doing a fair amount of "foreign" spending in countries that use the dollar (Ecuador and Belize (well, pegged to the dollar)). So not much math to figure out FX spread/charges...
     
  16. Global Explat
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    Global Explat Silver Member

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    Just checked Oanda out. Looks about as close to mid mkt as anyone could execute....

    Re: your background: I thought as much based on your insightful posts in the "Card Act Challenged - Stay at home Mom Income.." thread..
     
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  17. jbcarioca
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    As an experiment a couple fo years ago a friend who's an FX trader in one of the largest London trading desks and I tried an experiment. We, sitting together, he accessing the bank FX trading system, a proprietary one, I on Oanda, quoted the identical Euro to US$ trade for Euro 400,000.00. They two were within a few pips. Oanda, BTW, uses RBS for US$ settlement. Several other major traders including one of the large card associations use them for execution as well.
     
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  18. Counsellor
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    I think this is the reason using mid-point does not exactly track with what is actually used in a particular transaction.

    Even two purchases from the same store, using the same card, if done a few minutes apart will likely go at (slightly) different exchange rates because they cross at different times.

    Think of it this way: When you read the daily stock reports in the paper (or on-line) after the fact (i.e., after the market closes), you'll see open, high, low, and close. From that information, though, you don't know what an individual trade went at (unless there was absolutely no movement at all that day). So, simply reading the report (or the mid-price for a day when dealing with currency prices) doesn't tell you with specificity how one particular trade went, and the fact that one trade may have been above or below the mid-rate is simply to be expected.
     
  19. Global Explat
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    Global Explat Silver Member

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    You're right- Wouldn't expect mid point to exactly track what the card cos use. In fact, given I can't find an exact definition of what they do use, it would be impossible to replicate.

    But they clearly make something. I just want a better sense of what that is.

    Here's a little exercise: I'm currently at my Bloomberg terminal. I've downloaded the daily hi/lo and close for GBP for the last two months (apr and may). There has been some movement but it hasn't been enormously volatile. The average daily range (in percentage terms) of the currency has been 0.56%. So, the high interbank daily level has been about 0.28% above the daily average for the period.

    If the card company was using the mid rate at the time for my 15 transactions over this period, I must have been unlucky enough to transact at the high point of the day every single time..... ;) I hope I'm not THAT unlucky....
     
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  20. jbcarioca
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    jbcarioca Gold Member

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    if we had enough data and could track vs hi/low and daily midrate we'd really know what the typical "non-markup-markup" really is. I'll speculate it will not be far off from 40bp on average.
     
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  21. iolaire
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    iolaire Gold Member

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    I liked the premiss of this thread and would like to bump it and ask others that have relevant data points to share as the year goes on.
     
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  22. jbcarioca
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    jbcarioca Gold Member

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    That is an excellent idea. the more data we have the better. More knowledge will help us all make better decisions.
     
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  23. Global Explat
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    I've just returned from a one week vacation and should be able to add a bunch of EUR denominated transactions from my Ink Bold card once I get a moment to collate....
     
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  24. iolaire
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    iolaire Gold Member

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    Due to a credit card machine not printing the receipt I charged 2700 South African Rand purchases on two different cards within 30 minutes of each other last week (9/3). Here are the conversion results:
    Citi American Executive Card, 2700 Rand = $253.66
    Chase Ink Bold, 2700 Rand = $252.76

    So based on this half assed comparison I would use the Chase card over the Citi American Executive Card...
     
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