One of the most annoying things about spending money abroad—foreign-transaction fees—is gradually fading away. Fewer credit cards are imposing that levy each year, according to a survey of US cards by CreditCards.com.
Lenders are competing aggressively for customers who travel internationally, since they tend to be bigger spenders with better credit. Consumers are also getting savvier, so if cards include a foreign fee—typically 3% of the value of a purchase—they are likely to “not even give it a second glance,” according to Matt Schulz, an analyst at CreditCards.com.
There’s a thriving subset of technology companies that have built their businesses around what many see as excessive foreign-exchange fees. Mega-bank Santander made nearly $700 million last year from money transfers, much of which came from the margin between the rate it charges customers and the wholesale rate available to banks, according to the Guardian. If it charged the same rates as upstart money-transfer company Transferwise, that revenue would have been a fifth as much, the newspaper said. (Santander says its fees are “well in line with other banks and are explained clearly to every customer.” It is also looking into using blockchain technology to facilitate international transfers, to “improve the service and value we offer.”)
Transferwise CEO Taavet Hinrikus said the fat margins charged by big banks are the reason he co-founded the company. Other startups that specialize in financial services via whizzy mobile apps, like Revolut and Circle, also offer close-to-wholesale exchange rates and no transaction fees. It follows that old-school credit cards have to drop their fees to compete.
Amid signs that international travel is on the rise, more options for making money go further abroad comes at a good time… for consumers.