8/14/2008

Mastercard adds surcharges to cross-border transactions
involving the US - implications for Dynamic Currency Conversions

Transaction Processing Industry Update and Note
by Morgan Keegan & Company, Inc.

Mastercard adds surcharges to cross-border transactions
involving the US - implications for Dynamic Currency Conversions

Transaction Processing Industry Update and Note
by Morgan Keegan & Company, Inc.

MasterCard announced, effective October 1, 2005, new cross-border pricing for US issued or acquirer transactions. Previously US issued card used to make transaction in a foreign currency had incurred a 100bp currency conversion surcharge. This surcharge is being changed for US issuers to a now reflect a 20bp currency surcharge combined with a cross-border issuer assessment fee of 80bp - the total fees incurred by issuers (and usually passed on to consumers) will remain 100bps.

The renaming of this currency conversion fee follows Visa's announcement of its 100bp International Service Assessment Fee, which replaced its previous 100bp currency conversion fee. MasterCard is also introducing a new cross-border acquirer fee of 10bps payable on transaction involving a non-US issued MasterCard (including debit cards) used to make purchases in US dollars. For cross-border transactions occurring in the US but submitted in the currency of a foreign card holder (or any other non-US currency)

MasterCard is imposing a 20bp fee. The higher fee for transactions submitted in non-US currency appears at face-value to represent a disincentive for merchants (and acquirers) to utilize dynamic currency conversion (DCC) systems. However, given that DCC providers often operate on revenue sharing schemes with merchant and acquirers we believe the extra fees are likely to increase awareness of the other options available to merchant as alternatives to MasterCard's (and Visa's) in-house currency conversion schemes.