Spending money abroad has long been a complex and expensive process for consumers. Uncompetitive exchange rates and high fees when withdrawing cash overseas are just a couple of common issues.
The payments landscape has changed a lot in recent years. Consumers are no longer restricted to using only services provided by traditional banks when evaluating ways to pay in multiple currencies.
Let's take a look at the different forms of multi-currency cards available, how they work, as well as their benefits and drawbacks.
The payments landscape before multi-currency cards
In the twelfth century, pilgrims could leave deposits of cash with the Knights Templar. In return, they were issued letters of credit that could be redeemed in the local currency elsewhere (minus transaction fees, of course).
This was one of the earliest known forms of international banking.
Before multi-currency cards became readily available, travelers had few options when making foreign transactions.
One was - and still is - to exchange currencies in cash.
This can be done at a variety of locations, including banks, post offices, bureau de changes, or ATMs. It usually involves irregular and costly currency exchange rates and expensive cash withdrawal charges.
Until relatively recently, traveler’s cheques were another popular option. These were paper cheques that could be purchased from a financial institution. Once each was signed by the customer, they could be used like cash at participating merchant locations when on an overseas trip.
Users of both cash and traveler’s cheques would have to organise their currency exchange in advance of their trip abroad. This means the risk of exchanging not enough or too much money.
What is a multi-currency card?
Multi-currency cards are payment cards that can make transactions between one or more currencies and regions.
They facilitate currency conversion so that the cardholder can spend abroad or make international purchases.
Multi-currency cards come in the form of prepaid cards, credit and debit cards or virtual cards. They can be assigned to one or multiple bank accounts in different currencies and used for private or corporate purposes. They are usually offered as a physical card that can be used in-store or online.
A separate multi-currency prepaid card or replacement card isn't always needed. Regular debit or credit cards are increasingly providing multi-currency function. They simply convert currency at the point of sale.
What currencies can you spend?
Different multi-currency cards offer a different range of currencies. Starling Card, for example, only provides currency that can be used in the EU (Euro or GBP) or US dollars.
How does a prepaid multi-currency card work?
Prepaid multi-currency cards (also known as 'currency cards') are payment cards connected with an account that stores a foreign currency.
They allow cardholders to make transactions at a more preferential conversion rate than those usually available from traditional banks. These tend to have the lowest fees and charges while avoiding broad swings in exchange rates.
When the preloaded balance runs out, the cardholder is no longer able to make transactions. This means that, like cash and traveler’s cheques, spending has to be planned (or estimated) in advance and carefully monitored.
Benefits of prepaid multi-currency cards
1. Cost-efficient
Consumers can make substantial savings when using services provided by non-banks. These are usually far cheaper and offer more convenient ways to pay in other currencies. Consumers can reduce the amount of unexpected fees for cash withdrawals, and currency conversions.
2. Stable
Regular and fixed currency conversion fees may be guaranteed for fixed periods by many providers.
How does multi-currency credit and debit cards work?
Many credit and debit cards now allow cash withdrawals and money transfers between various currencies, including digital and fiat currencies.
Currencies can be automatically converted using funds available in consumers' bank accounts. This prevents cardholders from having to transfer funds through an external third-party account such as a prepaid card before making purchases.
Card providers such as Visa and Mastercard typically apply the exchange rates at the time of spending for each transaction. Some issuers will add foreign transaction fees of 1-2% on top of this.
This method of multi-currency provides flexibility and convenience. But exchange rates are more volatile than when using services based on prepaid cards. That means hidden fees can add up.
Difference between credit and debit cards
The main difference between credit and debit cards (including multi-currency ones) lies in the way each one is funded and how interest is applied.
Debit cards are linked to and draw directly from cardholders' current account as a bank transfer. Only the available funds can be used to make a purchase or withdraw cash the foreign currency.
Credit cards provide cardholders with a line of credit from a bank or other financial institution. If it's used, this credit must be paid back - sometimes with interest, depending on the provider. However, benefits can be offered, such as reward points, cash back or free travel insurance.
Examples of multi-currency debit cards
1. Starling
Starling provides both an individual and business account for the euro and US dollar. It uses MasterCard's exchange rate and has no extra card fees. And cardholders are able to withdraw money with no added ATM withdrawal fee.
2. Wise
Wise offers personal and business cards for spending up to 50+ currencies in 175 countries. It uses the mid-market exchange rate to regulate prices, which can save up to 88 per cent on currency conversion fees.
What technology is behind multi-currency debit and credit cards?
Many forms of technology are used to convert currencies, calculate exchange rates and move funds.
- Payment processing networks: These networks facilitate transactions between merchants, card issuers, and banks. Examples include Visa or Mastercard
- Currency exchange platform: These platforms (often provided by a third-party provider) enable real-time currency conversion
- Mobile app or online platform: These enable users to manage their accounts, track transactions, and monitor exchange rates
- Security features: These include chip and PIN technology, bio-metric authentication, and fraud monitoring
- Cloud-based infrastructure: This enables real-time updates and ensures consistent access to the latest exchange rates and account information
Benefits of multi-currency debit and credit cards
1. Time-saving
Cardholders can save time planning, managing and - for business travelers - keeping track of currency exchanges.
2. Flexibility
As there is no need to load funds or other preparatory tasks required, multi-currency debit and credit cards offer a much higher degree of flexibility when spending abroad.
3. reduced chance of card loss
Not having to carry an additional card reduces the chances of losing it or having it stolen.
For journeys that require more than one currency, a single card becomes even more valuable. Travelers can effectively spend multiple foreign currencies from one bank account rather than needing to carry and look after a collection of additional cards.
Multi-currency debit and credit cards vs prepaid cards
The popularity of each type of card depends on individual preferences and needs.
Prepaid multi-currency cards are generally more popular among travelers who want to limit their spending to a pre-defined budget.
On the other hand, multi-currency credit or debit cards are for those who want convenience and the confidence that comes with a flexible budget. They know they are covered for unexpected of spontaneous spending.
Prepaid cards can be time-consuming, inconvenient and - in some cases, costly - to set up. In contrast, adding multi-currency functionality to existing debit (including virtual debit) cards is typically free.
Other considerations
There are some considerations regarding multi-currency cards that should be evaluated.
For example, security concerns. If a card is lost or stolen, any cash withdrawn may not be replaced by a provider. Fraud protection and good customer care are also important in these circumstances.
Add-on or hidden transaction fees are another important area. An application fee, a monthly fee, ATM withdrawal fees, replacement fees, and inactivity fees, can all add up. Different providers have different fee structures and rates.
Pay Attention to DCC at ATM Withdrawals Abroad
DCC stands for Dynamic Currency Conversion. It is the instant conversion of a transaction into the local currency when withdrawing cash abroad. For travelers, it can offer peace of mind from knowing how much a foreign purchase costs in their home currency.
Some multi-currency card issuers take advantage of DCC customers by adding on significant margins.
Unexpected transaction fees combined with an uncompetitive currency exchange rate can make DCC a costly option for travelers.
What exchange rate do you get with multi-currency cards?
Economic events impact exchange rates
Exchange rates can be volatile due to global and local economic trends or world events. Inflation, wars, pandemics, policy announcements, and many other factors can play a role.
Multi-currency card exchange rates and providers
Exchange rates for multi-currency cards are centralized between Visa and Mastercard. An interbank exchange rate allows for unified currency conversion fees.
However, different financial institutions and card providers apply their own costs and conversion fees.
Travelers should be aware that conversion rates may be uneven and variable. Furthermore, there can be 'exchange rate traps' that provide misleading pricing and offer unfair deals. Examples of conversion charges as high as 18% have been reported.
Nuvei's currency management solutions
Whether your customers want to do business with you online or in-store, we make it easier to do business with and encourage return visits. We offer the best of both worlds when it comes to doing business like a local.
- Multi-currency pricing: Price your goods and services in the world’s most popular currencies
- Dynamic Currency Conversion (DCC and eDCC): Earn additional revenue from FX markup and attract more international customers
Find out more about our currency management solutions.
Summary
Before multi-currency cards, travelers often exchanged currencies in cash at banks, post offices, bureau de changes, or ATMs. This often involved irregular and costly exchange rates and charges as risk that too much or too little currency would be exchanged.
In previous years, there was little choice for consumers. Banks applied high fees for such services for many years, but today non-banks are able to compete.
Multi-currency cards are payment cards facilitating a move away from this model.
They come in two main forms: Prepaid cards and credit, debit, or virtual cards.
Prepaid multi-currency cards are cost-efficient and stable. They reduce unexpected fees but require cardholders to stick closely to a planned spending budget.
Multi-currency credit, debit, or virtual cards allow cash withdrawals, money transfers and real-time currency conversion. Their exchange rates are more volatile than with prepaid cards, though this can depend on which credit or debit card provider is used.
Exchange rates for multi-currency cards are centralized between Visa and Mastercard, but different financial institutions and card providers may still set their own costs and conversion fees, which may be uneven and variable.
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