How does Visa Calculate its Currency Exchange Rate?
October 7, 2013 45 Comments
In my previous post, I explained exactly how Capital One calculates its currency exchange rate. As it turns out, Capital One simply uses the exchange rate that is posted on the Visa Corporate Exchange Rates webpage (Link Updated 11/2014). But what about Visa? How do they come up with the rate that all Visa branded credit cards use (before the bank foreign transaction fee), and how does that compare with other options for currency exchange?
So how does Visa calculate its currency exchange rate? Visa.com has a very informative currency exchange FAQ page. Since it is pretty useful, I just copied and pasted the website’s response to below:
Every day—except weekends, Memorial Day, Christmas Day and New Year’s Day—Visa calculates the rate for the next day’s transactions. The Visa rate is selected from a range of rates available in wholesale currency markets or the government-mandated rate in effect one day prior to the applicable central processing date. Visa makes this rate available to issuing banks, which may adjust the rate when billing cardholders by applying a foreign transaction fee. The rate Visa makes available to issuing banks may vary from the rate Visa itself receives. Most consumers find that using Visa is a convenient and cost-effective way to make purchases and obtain cash when traveling internationally.
How do Visa’s currency exchange rates compare with wholesale currency markets? If you noticed in the statement above, Visa remained pretty ambiguous about how they come up with each day’s exchange rate. They only state that “the Visa rate is selected from a range of rates available in the wholesale currency markets…” Needless to say, I’m curious to know how Visa’s rate compares to this “wholesale currency market. ” To answer this question, I looked up the currency conversion rate from a number of different sources and put them in the tables below. With the exception of Master Card and Visa, every source can be considered a player in the wholesale currency market. The rates listed in Yahoo!Finance, for example, are said to be “bank rates,” while OANDA says its rates reflect interbank rates for transactions of $1 million or more.
I looked up the currency conversion rates on three different dates, just to see if there were any discrepancies. The tables contain the EUR to USD currency exchange rate for a transaction that was posted on the given date. Each date is sorted by highest cost (in USD) of 50 Euros. For more information on the sources, please see the bottom of the post.
What are the takeaways from these charts?
- The rankings are different on any given day. On July 30th, Visa had one of the worst exchange rates, but on September 16th it had one of the best. To me, this says that on average, Visa rates are a pretty good representation of wholesale markets. Obviously my sample size of only 3 days makes it impossible to draw any scientific conclusions, but just with this quick look I feel pretty comfortable taking Visa’s word.
- Master Card has consistently one of the worst rates for every day. In the 3 days I looked at, Master Card always had a higher rate than Visa, costing you anywhere from 2 to 29 cents more that Visa on a transaction of 50 Euros.
- The OANDA rate is always better than the Visa or Master Card rate. This, however, is not surprising since the OANDA rates are said to reflect interbank transfers over $1 million dollars.
Conclusion: While I may not get the same rate as I would when I was transferring millions of dollars, it is pretty clear (again only 3 sample dates) that Visa’s rates are competitive with the wholesale currency markets. Kudos to Visa for actually telling the truth on their FAQ website!
*Update January 6th 2015*
Based on a recent reader comment, I took a look at the exchange rates to compare Visa vs. Master Card. In my comparison for rates on January 2nd, 2015, MasterCard rates were better than Visa, which is the opposite of what I found in 2013. It’s anyones guess as to what may have caused this: Maybe Master Card will continue the trend of having better rates, or perhaps the better rates swing back and forth between Visa and Master Card from month to month or year to year. I’ve included a spreadsheet screenshot for the latest analysis so you can see too:
Description of Sources:
- Visa: This is the rate used for all EUR to USD transactions, the details are described above.
- MasterCard: This website has a similar conversion tool to Visa where you input the date and the type of currency. The website also states the following as a disclosure: “MasterCard uses multiple market sources (such as Bloomberg, Reuters, Central Banks and others) to develop exchange rates. These rates generally reflect either wholesale market rates or government mandated rates that are collected during the daily rate setting process. The displayed rates are derived from the buy and sell rates included in the MasterCard daily rate setting process and do not include any charges or markups applied by the Issuer. Please note that due to possible rounding differences, the displayed rates may not precisely reflect the actual rate applied to the transaction amount when converting to the card holder billing amount. The exchange rate that is applied to a transaction is the exchange rate as of the day of settlement which is the day that MasterCard determines the settlement amount to be exchanged between the acquirer and the issuer. The settlement date is therefore typically different from the date of the actual transaction. MasterCard does not provide the exchange rate when purchases are converted from the local currency by the merchant to the cardholder’s currency at the point of sale.”
- European Central Bank (ECB): In order to find the historical rates, you have to navigate to this page which shows the ECB reference exchange rate at 2:15pm CET. The ECB does not provide rates for Saturdays or Sundays.
- OANDA: According to this page, “The prices quoted by the currency converter are based on interbank market rates and generally reflect the exchange rates for transactions of US $1 MILLION or more.” The rate from this website is the Daily BID rate (as opposed to Ask or midpoint) because “it more accurately mimics the rate that you would be charged if you were exchanging money.” Daily is defined as the 24-hour period ending 22:00 UTC on the day prior to posting. Sunday rates are identical to Monday rates at OANDA.
- Google Finance: The daily rates from Google say they are taken at 23:00. It does not indicate which time zone. Google does not provide rates for Saturdays or Sundays.
- Yahoo! Finance: The only note on Yahoo’s webpage says that “The exchange rates given are ‘bank rates’. High street rates may be subject to commission.” Yahoo! does not provide rates for Saturdays or Sundays. If you select a Sunday, say October 6th, it will show you the rate for Friday October 4th.
- XE.com: The rate given by this site is the Mid-market rate as of 16:00 UTC on the specified date.
- ExchangeRates.Org: This rate is the average rate for the specified date. Here, Friday and Saturday rates are always the same but Sunday rates are different.
Sources Not Included:
- Discover Credit Cards: Unlike, Visa or MasterCard, there is no separate currency conversion webpage for Discover. This was the only information I could find.
- American Express Credit Cards: Perhaps it’s because American Express does a lot of currency conversion (traveler’s checks, kiosks etc.) but I couldn’t find a satisfactory link that listed their currency conversion rates. The only link I found was a link titled “American Express – Currency Converter.” The link turns out to be basically the same information as the OANDA link above (in fact the site says “powered by OANDA”), except it is just presented in a different format.
The Inquiring Investor 
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Excellent post, thanks a lot. Very helpful.
If I may twist the figures in yet another way, I find it relevant to note that when the VISA rate is bad, it is only bad by 0,2 or 0,3% of the mid market rate.
This is an interesting figure, worth comparing with :
– my online bank 2% high street bank foreign exchange fee put upon the VISA rate for VISA currency withdrawals and payments
– the best online exchange rate I got on line which ends up being 0,6% above the VISA
Too bad my online bank ended its 0% foreign exchange fee, and set it up at 2%.
Thanks again.
Matt
Hi Matt, thanks for those extra comparisons. In my experience using the visa exchange rate is one of the best ways to change currency for regular people. (If you have access to a lot more money you night be able to get a better deal)
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This was very informative! Thanks. I’ve been going to the visa “calculator” page as my daily reference. http://usa.visa.com/personal/card-benefits/travel/exchange-rate-calculator.jsp HOWEVER, it is NOT user friendly. It is not really a “calculator”. Does Visa have another site where I can just enter the amount I will be transferring? Some of the other exchange sites are so easy to use. This one is not. I’m getting ready to pay my daughter’s tuition in Euros ($12k!) You can see why I’m watching it every day! (fortunately, they take Capital One!) I was glad to see your explanation about Visa not posting for the weekends.
Hi Elizabeth – thanks for posting and pasting the link. It looks like the link I had no longer went to the exchange rate page so I updated the post with the link you gave. I agree though, that it is not very easy to use. Unfortunately, there is no other site where you can input the total amount of your purchase and have it spit out the Visa conversion… Frustrating!
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I’m sorry but I’m not sure if the information in this article is entire accurate. My experience right now in South Korea with exchange rates on my Capital One VISA credit card and Bank of America Master card is exactly opposite to what this article says. The exchange rates from Korean Won to US Dollar applied to my purchases are consistently WORSE for the Capital One VISA compared to the BOA Master card by about 1.5%. Of course the BOA Master card charges extra 3% foreign transaction fees, so the Capital One VISA is still better in the end. However if I compare the exchange rates only, the exchange rates by VISA are consistently worse by 1.5% compared to the interbank rates posted daily here in Korea, while the rates on the Master card are almost identical to the daily interbank rates. So in the end I only save 1.5% by using the Capital One VISA over the BOA Master card, NOT the whole 3% which I originally expected.
Hi Thanks for your comment. It is entirely possible that MasterCard rates are better than Visa rates – just depending on the day and currency. Sorry that the Visa rates are so much worse in your case! I tried to find the MasterCard conversion rates for January 2nd, 2015 for USD to KRW (South Korean Won) but for some reason the KRW is not a currency that you can choose. Maybe you could send one of your MasterCard conversion rates and we can compare to the interbank rate and the rate listed on visa.com? Just as a reference – the visa rate was 1 KRW = 0.000920 USD on January 2nd, 2015.
On Jan 2nd 2015, my purchase of KRW 10000 on Capital One VISA was posted as USD 9.20. Another purchase of KRW 10000 on Jan 2nd, 2015 on the Master card was posted as USD 9.07. The interbank rate on Jan 2nd, 2015 was around KRW 1103 = USD 1, pretty close to the exchange rate used by Master card. The difference is staggering and it has been consistently this way for other dates too. VISA is absolutely worse by almost 1.5% in their exchange rate, which is not disclosed nor transparent. So VISA is more evil than Master card for now.
Thanks so much for the additional details. Based on your comment and doing a quick comparison of USD to Euro and USD to Japanese Yen rates, I was able to reproduce the same thing that you are seeing. It looks like at the moment, Master Card offers better exchange rates than Visa. I have made an update to the post reflecting your comment! Thanks for bringing this to my attention, and now all we need to find is a Master Card with no foreign transaction fees!
That’s exactly what I’m thinking – A Mater card without foreign transaction fees! 🙂
Barclaycard has 2 Arrival Master Cards (no fee and + $89 fee waved 1st year) with no FTF. up to 2.2 cents per dollar spent credit on travel charges. Arrival+ has chip and signature and offline PIN so it works well in Europe at unmanned ticket stations and 2.2 cents on every purchase.
Barclaycard also has $200 ($400 for +) sign up bonuses and very good customer service!
Thanks for sharing – this looks like a good option and pretty good rewards too. Also its great to have a chip and pin option when traveling abroad!
What is interesting, looking at the Visa exchange rates, is that they seem to be giving you the worst possible rate that traded during a day, depending on the direction you are trading. Thus, even if you have “no fee”, Visa is capturing the spread between the highest and lowest prices of the day.
Here is the logic:
– Today is 1/28/2015, and Visa is showing rates for any transactions that POST on 1/28/2015.
– Transactions typically take 2 days to post, so we can assume these are the rates for transactions that happened on 1/26/2015. Visa would likely do any associated currency exchange on 1/27/2015, and post the transaction on 1/28/2015.
– Therefore, we should compare the Visa rates for 1/28/2015 posting to currency rates on 1/27/2015.
– First, check the USD -> EUR rate for 1/28/2015 with 0% fee. The rate is 1.142386
– Second, check the EUR -> USD rate for 1/28/2015 with 0% fee. The rate is 0.890938, which is equivalent to a USD -> EUR rate of 1.122413 (1/0.890938)
– How does this compare to the price of EURUSD on 1/27/2015?
– Bear in mind that a trading day for FX runs from 16:00 GMT to 16:00 GMT.
– The low price on that date was 1.1224, and occurred at roughly 06:22 GMT.
– The high price on that date was 1.1423, and occurred at roughly 15:40 GMT.
– You can roughly verify my quotes by looking at an intraday EURUSD price chart on Yahoo (link below), although that only shows prices every 30 minutes, so does not capture the absolute high and low values. I am using a subscription Bloomberg account which shows tick-by-tick pricing.
Conclusion: Visa, even when charging “no fee,” captures the full spread between the highest and lowest currency price for the day on which they are likely trading. In this example, that is the spread between 1.1423 and 1.1224, which is almost 1.8%. If the currency trades over a wider range during a day, the spread Visa captures will be larger. If the currency trades over a narrower range during a day, the spread Visa captures will be larger.
So while it may be “no fee” in some cases, they are still capturing a large, profitable, spread. That being said, I don’t think you can do better than that unless you are exchanging large amounts of money in a brokerage account.
Yahoo chart link:
http://finance.yahoo.com/echarts?s=EURUSD%3DX+Interactive#%22range%22%3A%22start%22%3A%222015-01-26T05%3A00%3A00.000Z%22%2C%22end%22%3A%222015-01-28T05%3A00%3A00.000Z%22%2C%22scale%22%3A%22linear%22
Sorry, one typo above, which I cannot edit directly:
“If the currency trades over a narrower range during a day, the spread Visa captures will be larger.”
Should read:
“If the currency trades over a narrower range during a day, the spread Visa captures will be smaller.”
Interesting comment Ryan, I really appreciate you explaining your logic too. This would make sense for Visa to do. And in the end it still isn’t THAT bad for the consumer. Any time I can trade currency exactly as I see it on yahoo or google (even if it is the worst daily rate) is a win in my book. Especially when we are only talking about small purchase amounts.
Nick,
Many thanks for your very informative article. i was going to add my comments to your 2015 update but cannot seem to add comments to that page.
The excessive spread/margin that is being created by Visa due to their apparent methodology of cherry picking the timing of the wholesale rates has now apparently reached a much higher degree for the Euro to US$ exchange in recent weeks.
March 10
Visa 1.090791
MC 1.070100
March 11
Visa 1.085891
MC 1.055599
all rates are with zero bank fee andare from the respective Scheme sites calculators as used by Nick.
The analysis that Ryan has done (excellent analysis Ryan) and the recent volatility in the currency markets seems to prove that Visa, is to say the least, using a sharp practice in their rate setting.
I for one am no longer going to use my BOA Visa card in Europe (where I currently live) and I am looking to the Barclays MasterCard.
Thanks for the post on exchange rates and charts. This helped me clear up confusion about so called “interbank rates” and atm networks.
I’d like to add a big exception to your overall post and the reader comments though. Most people are commenting about USD-Euro rates. The Visa, Mastercard, Google, XE, etc rates are all very close to each other so no need to get in a fuss about that.
However, on my latest trip, I was a bit surprised to see a large difference of money taken out of my account from my ATM withdrawals when comparing the actual withdrawal on my statement online vs my calculated withdrawal according to what Google and XE told me the rate was for the day. I was taking out Tanzanian Shilling from a USD account. The Google rate and XE rate on the internet was what I was going off of of. I called my bank after my trip and they said they go by visa.com rates. Much different in non-Euro cases it seems.
As an example, I checked that rate again today (March 30, 2015). Visa.com says 1725 TZS = 1 USD. XE shows 1845 TZS = 1 USD. Google shows 1845 TZS = 1 USD.
Conclusion: Rates across exchange providers are similar for euros-USD but not for other non popular currencies. Traveler beware!
Thanks for pointing this out. With the less traded currencies I guess I’m not surprised to see a mark up. I’ll keep an eye on this.
I disagree that the Visa and MasterCard cards are the same for Euro to Dollar
In the earlier analysis Nick created it was the case. Visa since then appears to have changed its rate selection methods.
Basically, Visa and Mastercard have forex traders who play on the currency markets with billions of dollars and other currencies. (Amex deals in USD – everything is converted to USD first, even for e.g. EUR/CHF transactions, whereas Visa and Mastercard would deal directly between the two.)
However, at the end of the day, it boils down to where the net movement of transactions has trended. So if USD 100m has been spent by EUR cardholders, but only EUR 50m has been spent by USD cardholders, then the EUR cardholders’ banks will need to be charged around EUR 90m, and the USD cardholders’ banks will need to be charged around USD 55.5m. After paying off the merchant banks, Visa would be left with around EUR 40m which will need to converted to USD 44.5m. The actual payments are actually in arrears so it is a bit more complicated. During the day all the traders will be trying to convert this money at the best possible rate.
Visa will then set its rate to give itself 0.25-0.5% profit over what its traders have actually achieved, and bill the customers’ banks, which is why if you spend very close to your credit limit in a foreign currency, you will go over limit once the transaction is processed. On the other hand, Mastercard does not aim to earn a profit in this manner. Instead, at the end of the day their traders will have achieved a rate that is better than the closing rate in one direction, but worse in the other direction. Cardholders are simply charged this rate, which is why as a GBP Mastercard holder spending in USD, AUD and EUR, I have over the past year always been charged rates which are up to 1% in my favour. (I.e. it seems that Mastercard spenders are in a GBP sellers’ market so my GBP is getting more foreign currency than it is actually worth based on other interbank conversions.)
JQ this is super interesting and it makes sense. Do you work in the business or have any sources for it? Thanks for taking the time to write out your explanation!
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Wow! You just explained in a simple and very straightforward way what Chase and Visa couldn’t do in the two hours I spent on the phone with them! So helpful! Thank you!!!
Thanks Aga!
Does anyone know where I can download historical data for Visa exchange rates? I’ve found no way get the info other than loading the page for each date I want. They also block all scrapers and iframes. You can skip the entry form by just using the URL “https://usa.visa.com/support/consumer/travel-support/exchange-rate-calculator.html/?fromCurr=USD&toCurr=EUR&fee=0&exchangedate=3/11/2016” (and replacing date/currency info)
Hey Dan, sorry I don’t know of anything like that… good thinking to try and use a scraper though. Let us know if you find anything!
I forgot to mention, thanks for this post, I’d been wondering about how they calculate for a while; you saved me a lot of work. Bummer that their website blocks all scrapers.
Hello,
Great post. “Every day Visa calculates the rate for the next day’s transactions” , can this be interpreted in a way that the rate for a given date is based on how that rate performed the day before? For example the rate I am given today by Visa is not the the based on how that rate is performing today, but instead on how that rate performed yesterday? I recently made a large transaction and was disappointed that Visa rate for that day was 0.9% percent higher than XE.com, which translated into paying additional hundreds of dollars.
Thanks Anitas. Your interpretation is mostly correct. For example, on Wednesday June 8, visa set the currency exchange rates that would be used or all transactions that posted on June 8th. These rates were based on previous day’s exchange rates. So in that sense you are right, the June 8 rate was based on June 7 performance. However, purchases usually take a day to post. So if you bought something on June 8, it probably didn’t post until June 9. And since June 9’s rates were based on June 8, it ends up working out in the end. At least i think so…
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Visa is currently fleecing its USD cardholders after the sharp decline in GBP. Market rate is currently 1.32…Visa is only giving 1.436! I’m using AMEX even with foreign transaction fees.
This is unbelievable. How’s visa offering such a crap exchange rate when the gbp has been low since Thursday night? Aren’t they supposedly following the market? Any ideas? I guess we’ll see what rate they offer tomorrow.
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According to my analysis of the past few months, a given day’s Visa rate is nearly exactly the same as the PREVIOUS day’s (not counting weekends) CLOSING HIGH rate — NOT the “day’s” rate.
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I just discover that some of my purchases in NZ using VISA card on the same day have different conversion rates and the explanation is in the attached link. Read paragraph about Dynamic Currency Conversion (DCC) and refuse conversion price of your purchases to US dollars while abroad making your payments. Watch restaurants, especially. Leave the conversion to VISA.
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Do we know what time during the day Visa sets the rate for the following day? Previously I thought it was set at Midnight eastern time but this does not seem to be the case. Any help would be appreciated.
Thank you,
Hi Bruce – I was never able to find that info. But I’m not sure it matters what time they set it since its not like they are tracking a certain indicator and when the clock strikes midnight they say “ok thats the rate for tomorrow!” I think its more like at somepoint in the day, they make a decision based on the what they see in the market. Does that make sense?
Excellent post, and comments. I can see there has not been a comment for some time now. Likely because nothing has changed. VISA, despite all their self congratulatory BS, “cherry picks” the rate they charge to their customers. I have tracked the USD/BRL for two years now. Two years ago, the VISA rate appeared to be fixed at a certain time of day. That is no longer the case, their rate is now fixed at the low of the day. In other words, the provide an exchange rate which did actually exist for a moment in time that day, but also happens to have been the moment which is most beneficial to them. In a volatile exchange market, such as the USD/BRL, they can more than make up for not charging a fixed fee. I just with they would be honest about how the calculate their exchange rate.