Regular readers already know that you can save a small fortune by using the right payment cards when you travel internationally.

How much bang for your buck you get abroad depends on a few things:

  • Fees paid to your bank
    • typically 3% markup on the exchange rate
    • sometimes an additional 1-3% foreign transaction fee (even if it’s in your home currency)
    • out of network ATM fees (often $5 or more abroad)
    • in rare cases also a fixed fee per point-of-sale (POS) transaction abroad
    • interest and other fees for credit card cash advances
  • Exchange rate offered by the card network
    • What’s the rate offered by Visa, Mastercard, or American Express? How does it compare to the interbank rate?
  • Fees paid to the merchant/ATM owner
    • Dynamic Currency Conversion (DCC)—when you’re presented with the choice of paying in the local or your home currency. If you don’t choose the local currency, you’re likely getting screwed on the exchange rate (often by 5-10%).
    • ATM fees, often in the $2 to $10 range per transaction.
    • In some countries (I’m looking at you, Denmark) it’s common for merchants to pass on the costs of processing the payment to you. That will usually range from free for domestic debit transactions to ~3% for international credit transactions.

Luckily, there are an increasing number of cards on the market promising no foreign transaction fees—so hopefully you’re not paying anything to your bank.

If you’re mostly using your card at point of sale rather than withdrawing cash, and declining dynamic currency conversion—then you’re probably not paying any fees to the merchant either.

Having accomplished all that, it’s okay to give yourself a pat on the back. You’ve deserved it.

At this point, you might be wondering “How far am I from not losing anything at all on my international card spend?” And the answer is “You’re pretty darn close!

But when you’re so close, why stop there?

There are a lot of myths floating around the interwebs when it comes to Visa and Mastercard’s methods for setting exchange rates and other international fees.

  • Visa generally gives 1% less favorable exchange rate than Mastercard. MYTH!
  • You get a different exchange rate if you’re using debit, credit or an ATM. MYTH! (Some banks add fees for certain transactions, however. Like a cash advance fee for using your credit card at an ATM.)
  • The card networks builds in a profit margin in their exchange rates. Yet another MYTH!

All this is not to say the card networks aren’t making loads of money off international card transactions. They are. But the costs tend to fall on the merchants and card issuers, not directly on you as a consumer.

For the last decade or so the networks have been required to offer exchange rates that follow interbank rates. But they still have some flexibility in exactly how they determine those rates. Usually they use a mix of interbank market rates, rates set by central banks, and government mandated rates.

Does Visa or Mastercard offer the best exchange rates?

I’m not the first person to attempt answering this question.

Peter over at Hungry for Points did an interesting experiment where he among other things looked at when Visa and Mastercard transactions posted (important because exchange rate is calculated on post date, not transaction date), what exchange rates he received, and how they compared to their respective online currency conversion tools.

Main takeaways:

  • Visa often takes a bit longer to post, but when they do they consistently match their published rate for the posting date.
  • Mastercard posted faster, but there were small variations in exchange rates even on transactions posted on the same day.
  • Although not a statistically significant experiment, Visa ended up being 0.27% more expensive than Mastercard.

His test was for cards based in US Dollars, spending in Euro. But could it be that there’s an opposite effect when spending in US Dollars with a card based in Euro?

To find out, I plotted the official exchange rates for Visa and Mastercard against the mid-market exchange rate as reported by Google for one month:

February 08 — March 09, 2017. Lower is better (you pay fewer euros per dollar).

February 08 — March 09, 2017. Lower is better (you pay fewer euros per dollar).

I see a few interesting things in the graph:

  • The Mastercard rate seems to lag one day behind the mid-market rate, while Visa lags two days behind.
  • You usually pay more than mid-market, but you can be lucky and pay a bit less on some days (due to the lag)
  • Visa is on average 0.30% more expensive than the mid-market rate, while Mastercard averages 0.21% above mid-market.

These findings are consistent with a NerdWallet study on data from 2015-2016, which found that for 23 out of 44 currencies tested Mastercard consistently provided a better rate, while Visa only did so for 3 out of 44. The rest were ties or inconclusive.

The differences between the two networks were generally quite small, but for a few currencies they found differences above 1%. One of them was the Norwegian krone.

This got me curious and I decided to test the reverse, i.e. how big the differences between Visa and Mastercard are for processing a transaction in US dollars on a card denominated in Norwegian kroner.

February 08 — March 09, 2017. Lower is better (you pay fewer kroner per dollar).

February 08 — March 09, 2017. Lower is better (you pay fewer kroner per dollar).

Compared to the mid-market rate, Visa averaged 0.26% above. Mastercard came in at a respectable 0.10% above mid-market—far from the >1% difference reported by NerdWallet.

Perhaps their sampling negatively impacted the exchange of Visa? To find out I decided to plot the graph for someone spending in Norwegian kroner with a US dollar card.

February 08 — March 09, 2017. Lower is better (you pay fewer dollars per krone).

February 08 — March 09, 2017. Lower is better (you pay fewer dollars per krone).

Again, Mastercard performed better, averaging 0.33% above the mid-market rates. Visa averaged 0.64% above mid-market. Still, the difference is not as pronounced as in the NerdWallet study, being only 0.31 percentage points.

What about American Express, Discover, and Union Pay?

Due to poor international acceptance, few people would use any of these cards as their primary travel card.

American Express is nonetheless a popular card for mile hunters in many countries. While Visa and Mastercard’s interchange fees in Europe are capped at 0.2%-0.3% in the EEA (European Economic Area), no such rules apply to American Express yet. So in many European countries an Amex is the only remaining option offering any decent credit card rewards (which are typically funded by the interchange fees merchants pay).

Although it’s a bit harder to come by accurate data for American Express’ exchange rates, it looks like they typically end up somewhere between Mastercard and Visa. See this thread on FlyerTalk and this article on the UK based MSE for some data points.

So, where does this leave us?

Although Mastercard tend to come out on top most of the time for most currencies, it’s not always the case. You can use the currency conversion tools of Visa, Visa Europe (for cards issued in Europe), and Mastercard to get a sense of which one will be cheaper in your particular circumstance.

However, since the exchange rate is determined based on the date the transaction is posted (which usually is 1-2 days after the transaction took place), it’s impossible to know your the exact exchange rate beforehand.

If you use a credit card offering rewards or cash back that will usually be a bigger factor in determining what card to use (a Visa card giving 2% cash back will still be better than a Mastercard offering 1%). Or if one of your cards offer no foreign transaction fees, while another charges 3%, you should of course use the former. But all other things being equal, a Mastercard will usually come out ahead on the exchange rate.