WalletHub asked Professor Karen Xie about no foreign transaction fee credit cards

Do credit card companies lose money by not charging foreign-transaction fees?

In terms of tangible cost, yes — not charging foreign transaction fees narrows down the extra revenue channels of credit companies. However, not charging foreign-transaction fees creates many intangible gains for the credit card companies including customer favorability, reputation and loyalty. Particularly, business and leisure customers who spend a lot abroad would almost only look for a credit card without foreign-transaction fees. Credit card companies can gain a lot of revenue from those customer segments, which offsets their cost of covering the foreign-transaction fees.

Do credit cards with no foreign fee just make up for it with other charges?

Certainly they do if the credit card companies have a large portion of the business and leisure customers who spend a lot abroad in their customer base. Like discussed in the above response, these customers are likely to spend a lot and make extra revenue to the credit card company, which can well offset the charges of foreign fees.

The credit card companies need to run a customer segmentation analysis first to identify the spending distribution of their customers. Then, they can make decisions on whether to offer cards with or without foreign transaction fees.

Do you think most people know whether their credit cards have foreign-transaction fees?

The information about foreign transaction fees is usually well disclosed on the brochures sent along with the credit card to customers. I do believe most people know whether their credit cards have foreign-transaction fees if they pay attention to such information. Those who travel a lot abroad and keep a keen eye on perks of credit card before they open one would definitely be well aware of the foreign-transaction fees.

Are there any other pitfalls people should watch out for once they have a no-foreign-fee credit card?

Three major pitfalls to watch out:

  • Try not to use the card to shop on products sold on websites hosted by servers in other countries or show foreign languages.
  • Avoid using the card when traveling abroad. Instead, use cash in the local currency.
  • Apply one credit card without foreign fees if knowing you will spend a lot when travelling to other countries.

Do people who get credit cards in other countries have to pay foreign fees in the U.S.?

Depends on specific rules of the credit card companies. For example, most credit cards issued by Asian financial companies and institutions do ask for foreign fees when their customers shop in U.S.

Does it cost card issuers/networks more to process international transactions than domestic ones?

Technology-wise, no. The network technology nowadays is well performing to quickly and robustly process the international transactions. The bureaucratic procedures and labor work involved in processing the international transactions are the killers of efficiency and cause most of the costs/fees.