MC Plan for Cross-Border Fee Boosts Conversion Services

By Kuykendall, Lavonne | American Banker, May 3, 2005 | Go to article overview

MC Plan for Cross-Border Fee Boosts Conversion Services


Kuykendall, Lavonne, American Banker


A plan for a new fee on cross-border transactions is having an effect that MasterCard International may not have intended: encouraging merchants to sign up for currency conversion at the point of sale.

Last month MasterCard announced that beginning in October, merchant acquirers in this country will have to pay a new fee on any transaction between a merchant here and a holder of a card issued abroad.

Vendors of dynamic currency conversion services say the acquirers would probably pass the fee on to merchants. Now merchants are looking at dynamic conversion, which lets them convert their bills to the cardholder's currency, as a way to recoup the charges.

For example, Duggins King, the general manager of Terra Blues, a bar in New York frequented by tourists, said he signed up for dynamic currency conversion to cover the new cross-border fee.

For the cardholder, the appeal of dynamic conversion is simple. As Bevy Seger, who runs a bed and breakfast in New York, put it, "It is nice to let your customers know what they are spending in euros."

But merchants have been somewhat slow to sign up for the service. "The thing that stops merchants today is that there is technical work that needs to be done" on their computer systems to use the service, said Philip D. Beck, the chairman and chief executive of Planet Group Inc.

His Long Beach, N.Y., firm provides dynamic currency conversion services to Vital Processing Services, Fifth Third Bank Processing Solutions, and other merchant acquirers.

Beginning Oct. 1, U.S. merchant acquirers must pay MasterCard at least 10 basis points on each transaction acquired from cards issued outside the country. The fee is doubled if the transaction is not submitted in dollars.

The fee appears to be "a disincentive for merchants (and acquirers) to utilize dynamic currency conversion," wrote Robert Dodd, an analyst with Morgan Keegan & Co. Inc., in a research note Monday.

A spokeswoman for MasterCard referred this reporter to an April press release in which it said the fee was a recognition that "both sides of the transaction receive significant benefits through the MasterCard system. …

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