Wednesday, May 7, 2014

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 fee.

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!
The 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 cardholders.

Current Chase cards that offer no foreign transaction fee:
Chase Marriott Rewards Premier Visa 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!


  1. Canadian CC holders also aren't that savvy, chasing the big incentives and switching companies. AMEX's surveys show that most of them simply use CC from their own banks, without much research. so, why would the big 4 banks change anything?

    I no longer own Chase Marriott card, and I don't lose that much on FX really. 2.5% is $2.5 out of $100, $25 out of $1000. Even less if one holds USD to pay off TD USD CC = no FX at all

    Anyway, if it does happen, I hope AMEX does it, at least on some cards like AMEX Platinum (Its annual fee is high enough to limit # of cardholders, so loss should be less even though Plat cardholders may be high spenders)

    Overall, I'm happy with the way Canadian CC market has transformed. The competition has brought out CRAZY welcome bonuses (not crazy relative to USA) like thounds of Aeroplan, $300+ worth of credits, big AMEX MR welcome, etc...

  2. Very true Jerry, most Canadians are complacent with the credit card they get from their bank not realizing that there is card out there better suited for their spending habits and reward wants. I think it may be slowly changing part in parcel because of the advertising banks have been doing over the last 8 months to get customers who were confused or frustrated with the whole TD-CIBC-Aeroplan debacle.

    I agree also that outside of the enormous sign up bonuses that are seen in the U.S. the Canadian card market is healthy and rewarding.

  3. Great article, thanks! There is also a hybrid Canadian credit card that waives the forex fee: Home Trust Equityline VISA. No rewards and only comes with purchase protection and car rental benefits. More to the point, you have to put up your house as equity to snag its 0% forex fee.

    Two words that Robb Eng and Rob Carrick both said after I mentioned the Equityline VISA a couple of years back: bad idea. I'd like to add two more: marketing gimmick.

  4. There are two more cards that have No Foreign Currency Transaction Fees and they are Sears mastercard and card

  5. Thank you Virginia. We did give those cards were mentioned in the original article