Why ‘no foreign transaction fees’ hasn’t proliferated in the Canadian credit card market

A few years ago you may
recall that we asked all the major credit and charge card issuers in
Canada whether they would follow the trend seen in the United States
with cards offering no foreign currency transaction fees. At the time
none of the major issuers said they would but since then we have seen
one small player come into the market with no forex fees, Chase.
Recently there has been a lot of chatter from people asking why it hasn’t proliferated in Canada. I’ve had some of our readers email me, seen some bloggers and
forum participants ask why we aren’t seeing more issuers offer no forex

I often asked that question myself and received the answer
from a loyalty colleague of mine from Aimia when I spoke about the
cobrand market in Canada at an industry conference last November. He had
the same question as well and was able to get the information out of one of the
major issuers as to why it isn’t being considered and with the recent
spate of emails and talk on the web asking the same question I thought I
would share that information with you. Interesting to note when I brought this up at a
recent meeting I had with a major issuer they simple nodded their heads
in agreement with the following:

It has to do with revenue!

primary reason we haven’t seen the major card issuers in Canada go down
the no forex fee road is simple, it comes down to revenue. The foreign
exchange fee generates a lot of revenue for Canadian card issuers and
when compared to the market in the U.S. it makes up a much larger piece
of the pie. How can that be you may ask as we only have a tenth
of the population of the U.S.? To start, per capita Canadians on a whole
travel internationally more often than Americans do (this include our millions of trips to the U.S). While Americans tend to
do more domestic travel than Canadians. That doesn’t mean we don’t, but
in terms of percentage of credit card holders when comparing the U.S. to Canada, more Canadians travel
abroad. Secondly and this is also a major reason, it’s shopping. Canadians make millions of cross border
shopping trips into the U.S.,  and you don’t hear of many Americans coming
into Canada to shop. Then there’s online shopping, the majority of
online retailers are in the U.S. or sell their items in USD. Of course
for Americans that makes it easy but for us it means a foreign
transaction on our credit card. The amount of revenue that Canadian credit card issuers would have to forego is huge!

How does Chase do it then?

If Chase can offer no
foreign transaction fees then how come other issuers can’t? The reason
is that Chase is relatively new to the Canadian market and have a very
small portfolio of card holders when compared to all other Canadian
issuers. They needed a marketing tactic that would help grow that
portfolio and Chase chose the no foreign transaction fee route. Ever
wonder why Chase cards don’t have a very strong insurance and
benefits package? That was the trade off, Chase had to decide what to
offer and rather than follow suit with most other card issuers who offer
big benefits they went the no foreign transaction route. It is a highly
touted benefit of Chase’s Marriott Premier Rewards Visa, Amazon Rewards
Visa and Sears Voyage MasterCard. You’ll see it in most if not all of
their marketing materials for those cards. If and when Chase becomes a
major player in the Canadian market don’t be surprised if they impose a
foreign transaction fee on the card(s) with the largest amount of

Current Chase cards that offer no foreign transaction fee:

Chase Marriott Rewards Premier Visa

Amazon.ca Rewards Visa Card

Sears Financial MasterCard

Sears Financial Voyager MasterCard

Screen shot from the Chase Marriott application page

Will other issuers ever offer No Foreign Exchange?

Above we state if Chase
can offer no foreign transaction fees then how come other issuers
can’t? It’s not that they can’t, they would if the could. Believe me
when I tell you that the product managers for many cards in Canada have
tossed around and pushed the idea internally only to be shut down by the
financial controllers as that forex fee makes them a lot of money and that is what this business is about, making money.

In general the Canadian credit
card market is one of the most sophisticated and ahead of the times,
our cards have pretty much maxed out on the rewards and benefits they
offer. That’s why the trend in the last couple of years has been first
year free, enhanced travel benefits (think The Platinum Card from Amex,
the Amex Air Miles Reserve, TD and CIBC Aeroplan Visa Infinite
Privilege) as the adders or differentiators for new or revamped cards. Now that those
are being maxed out what’s left? No Foreign Transaction fees is one for
that matter and as we stated a few years ago the first major
card issuer to go this route stands to take a big chunk of the Canadian
market. Will they lose revenue? Possibly as we don’t know the actual numbers card issuers make off the fee but possibly not, there could
be an equal trade off, the loss of revenue from foreign transaction fees
could be made up by volume as the more cardholders you have the more
transactions there are and of course the banks make money off each of
those transactions.

I’m not holding my
breath however. I don’t think we’ll see any of the major issuers go this
route soon. I hope I’m wrong but they need to make money and with some
card offers being very rich in terms of rewards and benefits (which
annual fees can’t even cover) the only way they can make that money is
on their merchant and foreign transaction fees.

I’d love to hear your thoughts on this topic! Feel free to comment below!