How does Visa Calculate its Currency Exchange Rate?

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? 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.

Currency Rate Comparison

What are the takeaways from these charts? 

  1. 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.
  2. 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.
  3. 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:

Jan2015 Rates

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.
  • 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.