Visa & MasterCard kick-start the next evolution of Card Payment FX Innovation
Visa & MasterCard now guarantee the FX rate applied to any foreign currency transaction for up to 9 days from the date of payment. The long-term impacts of this change are likely to be highly significant for the industry.
Before now, the foreign currency exchange rate for an international card transaction would not be finalized by the card scheme until several days (and sometimes weeks) after a transaction occurs. Cardholders would receive one FX rate at the time of payment and then a completely new FX rate days later, upon the final debiting of their account. The final FX rate delay left card Issuers, Banks and Fintechs at a structural disadvantage vs. Acquirers which could offer customers guaranteed exchange rates at the moment of the transaction via Dynamic Currency Conversion (DCC) and Multi-currency Pricing (MCP) services.
Visa & MasterCard’s updated FX pricing structure eliminates the structural disadvantage for card Issuers, which are now able to offer guaranteed FX rates at the time of a payment. This offers cardholders a new level of certainty about the cost of their transaction. One of the key reasons for cardholders to choose the exchange rate offered by merchants via Dynamic Currency Conversion (DCC) – certainty – is no longer exclusive to acquirers.
Furthermore, given that Visa & Mastercard FX rates are valid for 24 hours (not including weekends & holidays), card Issuers can now expand beyond the certainty of the cost AFTER a payment and start offering cardholders better FX rate transparency BEFORE they spend. Issuers can deploy a range of new, advanced features such as FX rate calculators, advanced FX rate notifications based upon geo-location and much more.
This one “small” change by the card schemes may ultimately reverse the competitive dynamic between Issuers and Acquirers for International card transactions, which raises new questions for both parties as they compete in this US$1.9tr market:
Key Questions for Issuers
What new features can I launch that will make my card product top-of-wallet for international transactions?
What is the optimal cross-border pricing strategy to ensure that cardholders see value in my offering vs. other providers?
Do I have the right tools and operational set-up to manage these new card-based FX opportunities? If not, who can help?
Key Questions for Acquirers
Is the DCC / MCP price the only point of competitive differentiation vs. Issuers after this change by Visa & Mastercard?
How do I establish my FX operations to ensure I have the most efficient foundation upon which to innovate and compete with Issuers going forward?
As travel and cross-currency spend recover post-Covid and this new competitive dynamic begins to develop, both Issuers & Acquirers need to consider how best to compete in the growing cross-border spend market. An important starting point will be to ensure that they have the operational foundations in place to capture the opportunity.
If you would like to learn more about building the optimal operational foundation upon which to compete for this multi-billion revenue pool in the cards industry, please visit www.cambrist.com/optimize or contact one of our team.