Using credit card abroad

[JohnB47]

My wife and I use our ATM cards, except for car rental. Last summer, she went to Chile and I did not. I noticed that BofA was charging a fee on one of her cards, but not on the "Premier" account. It depends on what type of account it is, or at least it did last year.

 

[xcelratr]

As a banker I offer the following simple ideas about paying when travelling. As an aside, I look forward to the day when I "get rich off all these fees" so I can quit working and dive full time. That hasn't happened yet, but I digress...


Cash
- highest immediate risk because if it's gone, it's gone
- more tempting for unsophisticated criminals to try to take from you
- offers the greatest protection of your checking account and credit report
- "no" conversion rate when USD is accepted, unless the conversion rate is built into the price of the goods/services
- conversion rate applies where USD isn't accepted, however prudent shopping of rates in both countries can minimize

Debit card
- less immediate risk because usually a PIN or signature is required for a crook to use
- tremendous mid-term risk because loss of the card can expose all the funds in your checking account to theft, possibly your other accounts if they're linked to the card as well
- low long-term risk since it's not common for fraud commited on your checking account to affect your credit report
- if debit card works at foreign ATMs, allows you to carry less cash at any one time, however increasing the # of ATM transactions increases the fraud risk
- debit card disputes can take slightly longer than credit card disputes, and not all banks provide provisional credit before the dispute is resolved, which means your money is gone unless and until the bank resolves the dispute in your favor
- may or may not be transaction fees and/or conversion rates depending on the bank(s), the merchant and the transaction

Credit card
- similar immediate risk to debit card, lower risk of PIN-based merchant or ATM fraudulent transaction, same risk of sig-based fraudulent transaction
- lower mid-term risk than debit card, because while you're arguing with the credit card company about your balance, you've still got beer money in your checking account
- higher long-term risk because of the potential damage to your credit report if the card is stolen, used and you cannot pay or get the credit card bank to resolve the dispute in your favor
- may or may not be transaction fees and/or conversion rates depending on the bank(s), the merchant and the transaction

There are other things like rewards programs and so on to consider. But hopefully this info, when added into the considerations about the expenses of the various payment methods, can help decide which makes the most sense for your personal tastes and needs.

One last item to note: not all atms and merchant terminals in the world use the US-style mag strip. In some countries, type 2 or other kinds of embedded-chip cards are becoming more prevalent. There are also countries (even 1st world countries like Japan) where cash is more the norm, and many smaller merchants don't accept any plastic at all. It always pays to do your homework well in advance of leaving.

Hope this helps.

 

[cappyjon431]

As a banker I offer the following simple ideas about paying when travelling. As an aside, I look forward to the day when I "get rich off all these fees" so I can quit working and dive full time. That hasn't happened yet, but I digress...


Cash
- highest immediate risk because if it's gone, it's gone
- more tempting for unsophisticated criminals to try to take from you
- offers the greatest protection of your checking account and credit report
- "no" conversion rate when USD is accepted, unless the conversion rate is built into the price of the goods/services
- conversion rate applies where USD isn't accepted, however prudent shopping of rates in both countries can minimize

Debit card
- less immediate risk because usually a PIN or signature is required for a crook to use
- tremendous mid-term risk because loss of the card can expose all the funds in your checking account to theft, possibly your other accounts if they're linked to the card as well
- low long-term risk since it's not common for fraud commited on your checking account to affect your credit report
- if debit card works at foreign ATMs, allows you to carry less cash at any one time, however increasing the # of ATM transactions increases the fraud risk
- debit card disputes can take slightly longer than credit card disputes, and not all banks provide provisional credit before the dispute is resolved, which means your money is gone unless and until the bank resolves the dispute in your favor
- may or may not be transaction fees and/or conversion rates depending on the bank(s), the merchant and the transaction

Credit card
- similar immediate risk to debit card, lower risk of PIN-based merchant or ATM fraudulent transaction, same risk of sig-based fraudulent transaction
- lower mid-term risk than debit card, because while you're arguing with the credit card company about your balance, you've still got beer money in your checking account
- higher long-term risk because of the potential damage to your credit report if the card is stolen, used and you cannot pay or get the credit card bank to resolve the dispute in your favor
- may or may not be transaction fees and/or conversion rates depending on the bank(s), the merchant and the transaction

There are other things like rewards programs and so on to consider. But hopefully this info, when added into the considerations about the expenses of the various payment methods, can help decide which makes the most sense for your personal tastes and needs.

One last item to note: not all atms and merchant terminals in the world use the US-style mag strip. In some countries, type 2 or other kinds of embedded-chip cards are becoming more prevalent. There are also countries (even 1st world countries like Japan) where cash is more the norm, and many smaller merchants don't accept any plastic at all. It always pays to do your homework well in advance of leaving.

Hope this helps.

Xcelratr, thanks for the great info. Since you are in banking I have a quick question for you:

I live in Panama where the currency is the U.S. dollar (they call them Balboas but they are the same bills we use in the States). Why does my bank charge very large international fees and ATM fees (they charge an additional ATM fee for using the ATM abroad) when the currency is the US dollar? If I take $500 out of an ATM using my debit card, it costs me about $25 in fees. It makes no sense to me and when I ask bank officers in the States I can't get a straight answer. There is no conversion and it is exactly the same currency. Thanks!

 

[xcelratr]

I'm just a retail branch monkey, and not well versed in the f/x biz, but I'll give you a few ideas to chew on.

#1: Despite using the same paper, there does seem to be an exchange rate for USD to Balboas. I did a quick Google search and came up with a variety of websites that claim to offer conversion rates of USD - Balboas. Here is an example, although I make no claims to it's legitimacy:

Friday, July 23, 2010
1 US Dollar = 1.01997 Panamanian Balboa
1 Panamanian Balboa (PAB) = 0.98042 US Dollar (USD)
Median price = 0.98106 / 1.01997 (bid/ask)
Minimum price = 0.98106 / 1.01997
Maximum price = 0.98106 / 1.01997
FXConverter - Currency Converter for 164 Currencies164 Currency Converter © 1997-2010 by OANDA.com.

So the bank(s) may charge a fee in order to cover any possible soft costs they have in moving funds to and from the US when there is a conversion involved.

#2: The networks that the US bank and the Panamanian banks use to get their ATMs to talk to each other (even though it's likely they own the ATMs themselves) cost money. The networks are often owned by indepenent companies (even if those companies are subsidiaries, spin offs or partnerships between banks) that make money by charging the member banks to set up and use their networks to allow ATMs the world over to talk to the home computers.

#3: There may be taxes, fees or license costs levied by the local or national Panamanian gov't, or even the US gov't. Especially if you're dealing with a US bank, it's possible the Panamanian gov't passed some law that charges taxes and/or fees on foreign banks in an attempt to drive business to Panamanian banks. So the fees they're charging you might be designed to offset them.

#3: The ATMs in Panama may be very expensive to operate. Network charges, armored service to transport currency/load the machines, losses from theft/fraud all may be higher than in the US. Anything more than simple maintenance on the machines themselves may involve flying a contractor in from the US. Shipping replacement parts for them is probably very expensive, and if there is no local supplier for the machines, the cost of shipping one of those monsters from the US and getting it delivered to the retail location is probably staggering.

Especially when dealing with disputes and fraud, it's probably very time consuming and difficult (meaning it's ultimately more expensive) for a US bank to handle overseas transactions than domestic ones. They have to abide by two countries' rules and regs, two jurisdictions. Hell, the phone calls alone in a simple fraud investigation are probably many many times what they pay in dealing with a US transaction.

Just as an example, US banks are under a lot of pressure to prevent money laundering and terrorism financing. Customers sending money abroad is something that banks have to look very carefully at. Like it or not, deposting funds in a US bank and then withdrawing it in a foreign country is one way of moving money abroad. So such transactions have to be monitored differently than US transactions. Monitoring those transactions consumes resources (software, hardware and people, all of which cost money). It's entirely reasonable that a bank would pass along those costs (in the form of transaction fees, or lower interest rates on deposits, or higher interest rates on credit) to the portion of their customers that perform those transactions, and not to the portion of customers that don't.

#4: The competitive environment might allow, or even demand, the bank to charge those fees in order for their Panamanian business to be profitable. It could be that the interest rate environment, the regulatory costs, the lending climate, the competition for deposits, etc, all conspire to make fee income a vital part of the bank's revenue in that particular area.

Some, all or none of these might be true in your situation. Frankly I'm not really in a position to give you a definitive answer, but I hope these possible scenarios help you understand all the moving pieces that might be at work.

As is often the case, it's probably not as simple as "those greedy bastards just want to bleed me dry".

** The fine print: Please note that all above statements are strictly my own ideas and viewpoints and in no way are intended to speak for my employer, industry or regulators. **

 

[xcelratr]

Perhaps relevant to the discussion: http://www.scubaboard.com/forums/cozumel/345635-coz-atm-warning-again.html