Saturday, December 11, 1993
UNKNOWN, Page 17, Edition(s) 2
By Joshua Shapiro, International Herald Tribune
Take Notes: It Can Be Costly If You Leave Without Them
By Joshua Shapiro
International Herald Tribune
GOING overseas requires lots of careful planning: Passports, visas, shots, tickets, reservations, itineraries, clothing for each occasion and climate. Too often missing from the to do list is bringing foreign currency - a costly omission.
Taking an AT&T, Chemical Bank, or MBNA Visa card might be the best bet for purchasing foreign goods and services. The retail rates at an airport currency exchange booths like the popular "Checkpoint" are always highly unfavorable to the tourist.
Depending on the currency, the amount of currency being exchanged, and the commissions and surcharges, as much as a third of the value of the dollars being exchanged may be lost. Coming on top of the trend towards a weakened dollar, this can be an unpleasant beginning to a vacation or business trip.
U.S. residents going abroad have an edge. Their credit cards provide an economical alternative. Unlike commercial money changers that give retail rates for buying and selling currencies, credit card companies use wholesale interbank rates usually reserved for foreign exchange transactions exceeding a million dollars.
U.S. card providers like Visa, MasterCard, American Express, or Diners Club each add a one percent commission on purchases, but this premium is low compared to paying in cash bought at retail rates from a Cambio, Change, Wechsel, or bank. Visa or MasterCard accounts offered by banks in Canada, Europe, and Japan typically charge several percent commissions. The actual amount of this charge must be disclosed in the fine print of the card holder agreement.
During times of currency rate flux, it is important to note that the conversion rate in effect on the day of the card purchase is not generally the one that will be used in preparing the monthly statement. The rate applied is the one on the date when the merchant submits their receipts to the card network for payment. This is termed the "clearing date." The customer is given the "posting date" which is when the purchase is charged to their account. This is generally the same as, but may be sometimes later than, the clearing date.
For some large urban merchants, that submit their bills electronically to MasterCard or American Express, the clearing date might even be the same day as the sale. But for most merchants, this would be several days later. For shops in outlying areas, clearing paper receipts might take longer than a week.
When the value of the dollar is stable, the time to clear the charge only has the affect on which billing cycle the charge will appear. But when the value of the dollar is strengthening, the longer the time to post the charges, the better for the purchaser, for it results in lower dollar charges on the monthly statement.
Likewise, when the dollar is drastically falling, it is much better for the consumer if the merchant clears his receipts daily. In either case, customers have the advantage of having the use of their money until after the next card statement due date.
Each card provider sets their exchange rates using a variety of different sources, creating the potential for differences between cards. Several sources might even be blended to come up with a rate, making it impossible for a consumer to know what rate will be used.
Although providers claim to have, in general, over time comparable and competitive rates, a careful detailed check of rates of four major world currencies (U.K. pound, German mark, French franc, Japanese yen) during a full two months (May and June 1993) in effect at Visa and MasterCard (American Express refused to cooperate with this survey) indicates that Visa typically offered slightly more favorable rates, particularly for Japanese yen.
Looking at less exact data from the last three weeks in June, American Express consistently offered less favorable rates than either Visa or MasterCard.
Besides using different sources for rates, banks report different transaction information on monthly customer statements. Having access to all the information, makes reconciling foreign-denominated receipts to dollars much easier. Of the major card issuers, Chemical Bank, MBNA America, and AT&T Universal Card provide the most comprehensive reporting.
So, except in the special case of a rapidly falling dollar, the consumer's most economical strategy is to charge as many overseas expenses as possible and settle the credit card bill immediately. For the miscellaneous items like cabfare and tips that are generally paid in cash, generally the least expensive way to buy foreign currency is using either a bank card against a U.S. checking account or a debit card at an automated teller machine in each foreign country.
DIFFERENT issuers also provide various different card services overseas. MasterCard has recently made special arrangements for cardholders with 1,600 Thomas Cook offices that can, for example, change airline reservations.
American Express has for years had its own travel offices that provide cardholder services such as providing a maildrop. AT&T and MBNA both accept collect calls from cardholders overseas. Interest on the balance due and the annual card fees vary by card issuers. Recently, AT&T offered the lower interest rates and annual fees.
Unfortunately, none of the contacted card issuers offer special billing arrangements tailored to the needs of expatriates or travelers with prolonged overseas itineraries.
Some industry observers regard the way credit card companies do business as being somewhat clubby: "The fact some card companies bother to provide the exchange rate on their client statements and others don't, hardly speaks well for the efficacy of market forces," said one London-based analyst.
"The main battle is being fought with travelers checks - even though some of the card companies provide this service too."
Ultimately, the card companies will start drawing consumers' attention to factors like exchange rates and settlement processes when travelers checks have gone the way of the dinosaur, Until then, there's a quasi-cartel in operation. And that will continue, unless some consumer organization starts getting excited about the situation."