Currency Conversion Processes for Card Transactions

Cross-Border Transaction Handling

When a card transaction is made in a currency different from the cardholder's billing currency, a currency conversion process is initiated. This involves multiple parties and considerations.

Interbank Exchange Rates

These rates, also known as wholesale rates, are the prices at which banks trade currencies with each other. They serve as a baseline for setting consumer conversion rates.

Payment Network Role

Major payment networks, like Visa and Mastercard, establish their own conversion rates based on interbank rates, often with a markup. These rates are typically updated daily.

Markup or Adjustment Fees

Financial institutions may add a markup or adjustment fee to the network's conversion rate. This compensates them for handling the currency exchange process and associated risks.

Transparency and Disclosure

Regulatory bodies often mandate that financial institutions disclose their conversion rates and any associated fees to cardholders. This promotes transparency and allows consumers to make informed decisions.

Dynamic Conversion

This refers to situations where the merchant offers the cardholder the option to pay in their home currency at the point of sale. While seemingly convenient, it often involves less favorable rates than those used by the card issuer.

Factors Affecting Final Conversion Cost

• Network rate at the time of transaction processing.
• Institutional markup or adjustment.
• Potential additional fees imposed by the merchant's acquirer.

Cardholder Agreement

The specific terms governing currency conversion are outlined in the cardholder agreement provided by the issuing bank. Reviewing this document clarifies the procedures and associated costs.