"Robert J Carpenter" wrote in message
news:%yzbe.13231$Nc.11257@trnddc08...
I just received a notice from MBNA that they are instituting a new 3%
fee for all charges made outsdie the USA __OR__ in a foreign currency.

Also, "For transaction made in a foreign currency the conversion rate
will be reduced by 1% compared to the way it was previously
determined." What does "reduced" mean. Does that mean I pay 1% less
for the currency or does it mean I get 1% less of the foreign
currency?

Your card probably has a currency conversion fee (read the T&C's, it should be
there somewhere). Sounds like they are reducing this, so you'll get charged 1%
less in the currency conversion fee, but 3% more as a new "foreign use" fee. So
you'll be 2% worse off where you pay in the local currency, and 3% worse off if
you pay is US$ abroad. Best check with them to be sure. Or get a new credit
card, the fees seem high.

What this is all about is a war as to who gets the lucrative currency conversion
markup.

What used to happen was you use your card abroad, you pay in the local currency,
VISA/MasterCard convert it to your home currency and charge your bank, taking a
small markup on the interbank rate. Your bank then charges you, taking a further
markup on the rate VISA/MasterCard charged them (although a few don't, and make
this a selling point).

Recently some bright spark came up with an idea called "Dynamic Currency
Conversion", where the retailer's POS terminal detects the nationality of your
card and converts the currency at the POS. The customer gets a slip to sign with
the currency conveniently converted into their home currency.

The catch of course is that the rate they use has commission built into it, and
to encourage retailers to use DCC, they give the retailer some of the
commission. So a customer who has gone to the effort of getting a card with no
foreign currency markup will still get hit with high conversion fees - unless
they remember to always demand to pay in the local currency.

The other effect of course is that VISA, MasterCard, and the banks lose out on
their highly profitable exchange rate markup fees. Which is why VISA and
MasterCard, and the banks, are starting to introduce "foreign use" fees as a
replacement (or addition) to exchange rate markup fees, so they can charge you
even if the currency is converted at the POS.

I guess the next step in this war is for the DCC operators to set up agencies in
every major country, so when you stay in a hotel abroad you'll actually get
charged by some agency in your home country. If this happens, banks who
introduced high "foreign use" fees could have scored a big own goal.

Instead they should be competing with the DCC operators, offering lower
conversion fees and pointing this out to their customers.

--
Andy