[dkjaudyeqooe]

> This is big part of the reason you don’t see high value reward cards or cashback program in the EU.

Interestingly my US 1.5%-3% (regular, also 5% special) cashback cards keep paying out on transactions here in the EU. I've always wondered who is losing out in that equation.

[triceratops]

You probably pay for it with the exchange rate spread. Your card may say no foreign transaction fees but they're already taking a 3% profit margin on the currency conversion.

[lotsofpulp]

I expected this, but I have tested this theory many times, and my credit card issuing bank or even debit card issuing bank offer exchange rates extremely close to the spot rate.

For credit card, I have tried this with Bank of America, Chase, and AmEx. For debit card, I tried with Schwab. And in all cases, I checked the currency exchange rate, and it was very close to the spot rate.

Where you do get hammered is by international merchants, who ask if you want to pay in local currency or USD (if you are American I guess). You should always choose to pay in local currency (meaning the merchant requests the payment in local currency from your card), because your credit card issuing bank will give you a much better currency conversion rate than the merchant will.

If you say you want to pay in USD, then the merchant will calculate a USD price that is much higher than the local currency price.

[pembrook]

This. There's so much funny business that goes on with FX rates that it makes me almost pro-crypto.

Even the people who claim to offer raw spot market rates (ie. Interactive Brokers), in fact do not offer that. I would not be surprised in Visa & Mastercard do the same--although they claim otherwise.

[triceratops]

Come to think of it, would Visa/MC be doing the conversion? I believe that's the issuing bank's job. But they offer the rewards, not Visa/MC, so it doesn't change the original answer much.

[dkjaudyeqooe]

Visa/MC are doing the conversion, and that does makes sense to me given their central position in the transactions. There are (basically crooked) originating (I think that's the right word) banks/payment processors that convert it for you, with a 3% plus spread. Paypal is the most egregious in this category.

The rewards are funded by the banks via interest income. 3% cashback cannot be covered by interchange fees, for instance.

[avianlyric]

Visa/MC do the conversion, but it’s not unusual for banks to tack on extra fees. Additionally banks can choose to settle in multiple currencies, and handle the FX themselves.

VISA/MC do offer the spot rate. But the idea of a spot rate is a little iffy anyway, as it assumes that there’s a counterparty willing to sell/buy at that price, and at the volume you want to transact at. When you’re operating at MC/VISA scale, that isn’t a given, and neither of them are interested in taking on FX risk. So their spot prices will be close, but likely not identical to spot prices you might find at other FX providers. Over the long term though, I would expect any delta to balance out.

[Denatonium]

When I took my Schwab debit card to Europe, the exchange rates that I got were identical to the ones posted on Visa's website, suggesting that it's Visa doing the ForEx conversions.

A lot of banks do charge a percentage fee on top of Visa/MC's exchange rate, but my bank does not.

[Cyph0n]

Schwab and Fidelity debit cards are the only ones that do this AFAIK. In addition, you get unlimited ATM fee rebates, even outside the US. I’ve stopped taking cash home and instead withdraw from my Schwab account :)

[dkjaudyeqooe]

I definitely don't. Visa/MC takes about 0.5% and the bank takes nothing. I've checked many times.

[ar0]

The answer is in the original Stripe article: The merchant pays much higher fees when you pay with your US credit card than when you pay with a EEA credit card because the interchange limits only apply to purchases within the EEA made with a "standard" EEA credit card (corporate cards are also exempt, which is why Stripe is charging higher fees for them as well).

[mytailorisrich]

The EU cap only applies if both payer and payee are local. If you have an US card and uses it in the EU then the cap does not apply.