Investors know very well the importance of spreads to foreign currency trading, a staggeringly large industry with an average daily turnover of roughly $3.98 trillion, but when it comes to foreign business travel or relationships with overseas vendors, many business owners fail to take advantage of disparities as high as 15% between the exchange rates offered by different payment methods and different companies.
Card Hub recently conducted a study of the US dollar-to-Euro exchange rates available via use of a MasterCard or Visa credit card and the cash exchange services offered by both major banks and Travelex, the biggest airport currency exchange company in the world. This study revealed that:
- Visa and MasterCard provide the best exchange rates—14.7% lower than those offered by Travelex and 7.9% lower than the major-bank average
- The banks that offer the best rates are Northern Trust and Harris Bank
- The banks that offer the worst rates are US Bank and Fifth Third Bank
- An 11.9% differential exists between the best and worst rates banks offer
The study’s findings result in a clear money-saving strategy for business owners who must either directly or indirectly deal in foreign currency.
First, business owners must openno international fee credit cards on either the Visa or MasterCard network before sending employees overseas or making purchases through foreign-based companies.
Not only do Visa and MasterCard automatically provide the best possible exchange rates, but this type of credit card will help you avoid the 3% fees for transactions processed outside the U.S. that 90.2% of credit cards have.
Second, though Card Hub’s study did not delve into wire transfer exchange rates, it’s likely that if you pay a vendor via wire transfer, the dollar figure that vendor quotes you will have been determined using a bank-driven exchange rate. Therefore, if the vendor is one you deal with on a consistent basis, it might be worthwhile comparing the merchant’s exchange rate to those offered by Visa and MasterCard. Depending on the differential, paying with a credit card could be a win-win, even when the merchant’s interchange fees are taken into consideration.
Not only will you be able to earn rewards on such a transaction with a credit card, but paying with a credit card will also better your ability to recoup your money in case of breach of contract. Unlike with wire transfers, which are in most cases considered settled as soon as they are made, Visa and MasterCard have chargeback policies favorable to cardholders. A chargeback is when a cardholder’s bank forces a merchant to return payment for goods or services not provided as initially agreed upon.
Armed with such a plan for strategic currency conversion, you’ll be able to lower your company’s costs while maintaining important relationships abroad. In a global business landscape, both of these things are necessary to truly compete and maximize your company’s earning potential.
Odysseas Papadimitriou is the CEO of Card Hub, a leading marketplace for consumer and business credit cards.