Foreign Exchange Rates – VISA vs. MasterCard vs. Amex

There is a widely circulated belief that VISA’s foreign currency conversion rates are 1% less favorable than MasterCard’s.  Even in the absence of an explicit foreign transaction fee, this “hidden surcharge” may cost VISA’s customers more.  The assertion is that a savvy consumer should use a MasterCard abroad.

This topic received a lot of attention recently:

• In February, View From the Wing titled a post Does Visa Shortchange You 1% on Foreign Currency Conversion?  With only three data points, he concluded that MasterCard had a 1% advantage over VISA, and VISA tied with American Express
• A day later, Doctor of Credit wrote What Foreign Currency Exchange Rate Do Credit Card Issuers Use?  It was a fairly technical article on how payment networks determined their exchange rates, and looked into some examples of currencies where VISA and MasterCard had an advantage over each other.  He mentioned in passing that the alleged 1% difference may be a thing of the past
• In May, One Mile At A Time did another comparison between VISA and MasterCard using their respective currency conversion tools.  The approach was similar to DoC’s, but the post was titled with the strongest wording yet: Why You Should Use A MasterCard When Traveling Internationally
• In the comments below each post were some readers noting how they had switched to exclusively use MasterCard abroad, reaffirming the MasterCard advantage on exchange rates

A 1% difference would be a big deal – it’s as much as the gap between cash and credit card just a few years ago.  Does this “hidden surcharge” really exist, though, or is it an outdated phenomenon as DoC noted?  I have a lot of respect for Gary and Lucky, and love their blogs.  However, in this case they both made a definitive claim based on very limited information.  I was intrigued by this topic, but not ready to accept their conclusion with the level of details presented.

I set out to collect my own data.

Immediately upon reading Gary’s post, I looked at my own foreign purchases last year.  My family traveled through the UAE last summer and casually switched between a few credit cards.  The resulting exchange rates are illustrated in the chart below.

The spread across the Y-axis is 1%, and the gap between the dotted lines is 0.1%
For us consumers, higher = better.

The exchange rate was overwhelmingly stable, which made sense since the dirham was pegged to our dollar.  The dip on September 1 was due to rounding on a 87-cent bottle of water.  Amex and VISA, which I did not use much, appeared a tiny bit less favorable than MC.

Later in the year, we visited South Korea and used credit cards more frequently.  Looking at the Korean Won was interesting because the exchange rate fluctuated more than 1% within that week.  MC gave me better rates than VISA for all but one transaction, which I assume was influenced by a delayed post date.  Summarized by day, MC’s advantage over VISA went as high as 0.3%, but was usually less than 0.2%.  There were only two data points on Amex, both of which beat MC by more than 0.2%.

The gap between the dotted lines is 0.1%

Concurrent to these findings, I came across a comment asserting that VISA’s 1% “hidden surcharge” existed in Europe but not as much in Asia.  No explanation was given, but the Asia part was consistent with my observations.  I itched to know if there was any truth to the other part.  Fortunately, we had an upcoming vacation in Europe.  I was excited to experiment with this opportunity – I’d use each type of card everyday for a consecutive period.  I brought Citi Prestige (MC), Chase Hyatt (VISA), and Amex SPG Business.  For an additional measure, I also brought Chase IHG (MC), to see if the issuing bank made a difference on top of the payment network.

Amex was challenging because not every establishment accepted it.  Chase IHG was even harder because it had no chip, rendering it impossible to use in most places.  However, I was able to make a minimum of 2-3 purchases per day using each of Citi Prestige and Chase Hyatt, the main focus of my experiment.  I compiled the data as follows.

In Belgium and France, my MC and VISA exchange rates for the Euro aligned quite closely.  The “MC advantage” ranged from 0.0% to 0.2%.  An exception was found when I bought some museums tickets online, several weeks prior to the trip, and found VISA giving me a 0.2% better rate than MC.  Amex aligned very closely with MC for the first few days of the trip, but then fluctuated up and down as far as a 0.5% deviation.

The gap between the dotted lines is 0.1%

Lastly, we visited the United Kingdom, where I found the highest spread between MC and VISA.  They started out almost identical, but diverted strangely: the exchange rate improved with MC, but simultaneously deteriorated with VISA.  At its peak, the “MC advantage” reached 0.5%.

The gap between the dotted lines is 0.1%

BOTTOM LINE

From my experience with ~150 transactions across four foreign currencies, no payment network consistently provided better exchange rates than others.  MasterCard was directionally more favorable than VISA most of the time, but the difference was far lower than the rumored 1%.  While I wouldn’t doubt anyone who have witnessed worse from time to time, the spread in my experience never exceeded 0.5% on any day, and averaged to about 0.1%.

It’s not for me to say whether 0.1% is significant to you.  However, many of us value the reward structure between any two credit cards (i.e. 2x Ultimate Reward points versus 2x Thankyou points on dining) more widely apart than that.  As such, when I pack my wallet for international trips, this exchange rate issue will not be on the top of my mind.

As for Amex, its limited acceptance abroad makes it unlikely the primary card of choice on an international trip.  However, when the moment calls for an Amex, know that it may give you a slightly better or worse exchange rate, just like all the other cards in your wallet.