What is the Mastercard exchange rate, and how will it impact my overseas card payments?

Show of hands: who here has gone overseas and just used their credit or debit card to make payments, not even bothering to exchange their currency? It’s okay, we won’t judge you. Most people who travel abroad pay for almost everything with their domestic bank-issued credit cards. That’s the most convenient way to pay for goods and services, but this convenience is not free.

The Mastercard exchange rate is particularly important in those parts of the world where an international border is just a short drive away. If you live near the Texas-Mexico border and crave some genuine Mexican food, the restaurante will probably accept your gringo bank credit card without a problem. But there are fees involved, and the process involved is not always entirely transparent.

Just how much extra are you paying when you swipe your card in another country? Well, if you’re using a Mastercard, we can tell you right now.

How do I calculate the Mastercard exchange rate?

Almost any time you use a credit card overseas for any purpose, like cash from an ATM or paying for goods or services, the same basic exchange fees apply. Mastercard usually publishes the rates, usually by adding fees to individual transactions. Here’s the information Mastercard typically uses to calculate these rates:

• Transaction Processing Date: Assume you buy dinner on the first of the month at your preferred restaurant, as mentioned above. Mastercard processes your transaction on the third day. Mastercard will use the currency exchange rate on the third, and not the rate on the first day.

• Bank Fee: Mastercard is basically a payment processor. Banks are the ones who issue credit cards. And guess what: some banks charge fund transfer fees of up to 13 percent. This fee is the most unpredictable element in the Mastercard exchange rate calculation.

• Type of Currency: Most banks, but not all of them, issue credit cards in that country’s preferred type of currency. Most foreign transactions, but not all of them, are in another type of currency. Time and transaction amount often affect currency exchange rates.

This calculation is usually, but not always, the amount you pay. Mastercard advises customers that the listed costs are indicative as opposed to conclusive. In other words, your fee could vary, especially because of the changing nature of bank processing fees.

Calculating the Mastercard exchange rate is only step one. To decide if you are getting a good deal or if you should go with Xe or another payment processor, compare the Mastercard exchange rate with the mid-market exchange rate, which is also known as the interbank exchange rate.

Many banks also add convenience fees, much like they charge fees for using a non-bank ATM. These fees are usually outlined in the account terms and condition section, and the print is usually extremely small.

On a related note, many overseas banks charge similar fees. Let’s return to the ATM example. If you use a Bank of America card at a Citibank ATM, both banks will assess convenience fees. Likewise, overseas banks often add their own convenience fees to Mastercard transactions.

What is the interbank exchange rate?

If you Google the currency exchange rate, you will learn the interbank (or mid-market) exchange rate. But in almost all cases, your rate will be higher.

The mid-market rate is reserved for large Wall Street banks and institutions making huge transfers. When banks loan money to consumers, they increase the rate. Most consumers pay an inflated day rate. 

Apropos of nothing, payment processors often manipulate the day rate to offer things like zero commissions on foreign currency conversions. Since these providers do not charge a commission, they increase the day rate to make up the difference. Sleight-of-hand tricks like this one are rather common. Be mindful of providers claiming “no fees” or other too-good-to-be-true promises—they are likely offering an inflated rate.

When does Mastercard’s exchange rate apply?

Rather surprisingly, the credit card exchange rate does not apply every time you use the card overseas. 

Frequently, foreign merchants ask customers if they would like to pay in home currency as opposed to local currency. Many people say “yes,” thinking they have outsmarted the system and avoided Mastercard exchange rate fees.

Not so fast. The payment is still converted, but Mastercard does not handle the conversion. This is called DCC, or Dynamic Currency Conversion. Following the transaction, a third party, like an ATM provider, a merchant, or the merchant’s bank, unilaterally decides what exchange rate to use. 

Since there is normally no relationship between the converting party and the customer, the converting party almost always marks up the DCC as much as possible. These customers usually do not see DCC fees until they receive their statements. By that time, it is too late to complain, and the DCC processor probably would not care anyway.

Bottom line? Avoid the DCC at all costs. That might be the ideal way to ensure that you are getting the best possible deal on a foreign Mastercard transaction. Other fees might be high, but at least they are relatively transparent and Mastercard users have at least some control over them.

What’s the best way to make international payments? 

The good news is that many foreign funds transfers do not require credit cards. Recurring bills, like mortgage payments, and direct payments, like invoice payments, are a good example. Xe users can seamlessly and cost-effectively move money to over 130 countries. We provide secure, fast, and convenient funds transfer services.

Paying with Mastercard when you travel internationally is a convenient way to pay for goods and services, but it might not be the best for your budget. For a more cost-effective way to directly send money overseas, log in to Xe or sign up to get started today.