Ripoff on Visa Refunds for Foreign Purchase

FionaF93

Hi OneWayBet,

Thanks for your reply and great analogy!

As it turns out AIB has replied to me and they have refunded me "as a gesture of good will".

Fiona

OneWayBet

FionaF93 wrote: »

Hi OneWayBet,

Thanks for your reply and great analogy!

As it turns out AIB has replied to me and they have refunded me "as a gesture of good will".

Fiona

Common sense prevails! Glad you got your money back

Yama

Maybe this will help explain to you why there is a difference between buy and sell rates. Your case highlighted a problem where people can get caught out, but no ones fault but yours and the vendors. If you had changed cash into £320, handed it over and got a refund and then went back to change your £320 back in Euro, you would have lost out as well, and paid commission probably. Very simple. Fair play to AIB really for looking on you as a special case and refunding you.

Explanation From xe.com
Like any non-centralized, widely distributed market, the currency market has different prices when you're buying and when you're selling. As an example of how this market operatives, let's consider a similar and familiar market: antiques.

Let's say you find an antique lamp in your house. You look up the value of the lamp on the Internet and find that on average, the market value of your lamp is $200.

So you take the lamp to the antiques dealer and they offer $180 for your lamp. Yes, it may be technically worth $200, but the dealer has to buy it for a little less than market value in order to stay in business. So they buy the lamp from you for $180.

So next you go home, only to find out that the lamp was an important heirloom that should not have been sold. So you head back to the market to buy back the lamp. Luckily, they haven't sold it. You see the lamp in the store window, but now the price tag says $220! The dealer has marked the lamp up from market value in order to stay in business. So they sell the lamp back to you for $220.

In this example, the antique dealer's buy rate was $180, and their sell rate was $220. The average of the buy rate and the sell rate is the market rate, which was $200. However, it is important to note that no trade actually occurred for this amount. With the lamp, as with currency, nobody trades at the mid market rate. Anyone who did would lose money.

Of course, different dealers might have charged different amounts. One might have offered to buy the lamp for $150, another for $190. But in no case can dealers buy at more than the market rate, or sell at less than the market rate, without going out of business in the long run.

The exact same thing is true when dealing with currencies. All currencies have a market rate, and different dealers will set different buy and sell rates depending on the money they want to make. When converting from one currency to another, you are always buying one currency and selling another, so you will always get the buy rate from one currency and the sell rate from the other.

The further the buy and sell rates are from the market rate, the more the transaction costs you. Some dealers are very far from the market rate, whereas we at XEtrade strive to save you money by making our rates as close as possible.

In summary, buy and sell rates are prices set by currency dealers to stay in business.

When doing a conversion, our free currency information services always list the mid-market rate, since we can not know if you will be buying or selling a given currency. The mid-market rate is the most generally useful number, since it serves as a reliable, indicative value for the currency that is not weighted towards buying or selling.

OneWayBet

I fully understand the buy/sell difference and that the market sets the rates but I think it is naive to think that an organisation as large as VISA trades currencies with the market on a micro level.

My understanding of how this works is when you buy something online the merchant receives an authorisation and VISA effectively gives the merchant an IOU for the amount (less any charges). No money changes hands at this stage, VISA debits the consumer's account and credits the merchant's account and pockets the difference in the buy/sell rate and commission.
Let's say an hour later the merchant issues a refund, VISA simply debits the merchant's account with the same amount and converts the notional GBP amount back into EUR, again pocketing the buy/sell difference.
Any minor fluctuation of market rates at this stage are neither here nor there because VISA would not have traded with the market.

VISA would trade currencies but only on a macro level, the treasury dept would monitor world affairs and manage risk by trading currencies depending on their exposure and perceived risk of that currency.

So, I agree it is an issue between the vendor and the consumer but at the same time it is a ripoff, not much we can do about it, this is the way the system works and there isn't much competition in the credit card market so the only way this will ever change is if for example the EC forces them to change their ways.

One other interesting possibility that somebody mentioned earlier in this thread is if the vendor issues a VOID rather than a REFUND it may be that these fees are circumvented. I'm not sure if it is a case of vendor ignorance here or if there is some reason why the vendor cannot issue a void..