USD or PHP for credit card purchases

[OnMyWay]

43 minutes ago, Jeff R Us said:

Here it is!

I've never seen that offered like that.  That is a moneymaking scheme by BDO, the credit card processor for the resort.

They tell you right at the top it will cost you 4.5%, but you really don't know what the base for the 4.5% is.  So you could actually be paying more than 4.5%.  They express the rate in dollars per peso, which most foreigners don't think in.

Their stated rate 0.01988112 is about 50.30 and without 4.5% deducted would be 0.0189864696 or 52.67, so that is the approximate base they used.

The only advantage to choosing dollars would be in the case where you know your CC has a very high foreign transaction fee.  However, I don't know if the currency is the trigger for a foreign transaction fee.  You might get it even if the charge is in dollars.
 

 

[Gentleman.Jack.Darby]

6 hours ago, Jeff R Us said:

Math has never been my strong point so please bear with me. 

We recently took a day trip to Siquijor. We were so impressed with the resort where we had lunch that we decided to spend the night. Because it wasn't planned for I was short on cash. When we checked out I handed the clerk my US Visa credit card and was asked if I wanted to be billed in pesos or dollars. Being the first time I ever charged anything in the Philippines I was caught off guard and didn't know what was best so I just said dollars. Did I choose the right currency? Is it better to be billed in the local currency or your home currency where you bank? As I research online I am more confused. Can anyone shed some light on how best to handle CC purchases? 

When making a credit or debit card purchase in a country other than the country in which a card was issued, ALWAYS ensure that the charge is made in the local currency, in this case PHP, and NEVER in the currency of one's home country.

When a merchant offers to process a purchase in one's 'home' currency, in this case USD, the merchant is offering 'dynamic currency conversion' and dynamic currency conversion rates are NEVER as good as the foreign currency conversion rates offered by the network to which one's card 'belongs', in this case the VISA network.

The reason a merchant offers dynamic currency conversion is because both the merchant and the merchant's local bank that processes their credit and debit card purchases make more money from it; the card network to which one's card belongs earns their fee no matter which way the transaction is processed.

Foreign currency conversion rates are ALWAYS set by the network to which one's card belongs, such as VISA, Mastercard, or American Express and not by the other entities involved in the purchase or ATM withdrawl transaction. In general, VISA and Mastercard forex rates on any given day are very, very, close and American Express rates are almost always the least favorable.

Both VISA and Mastercard have online converters that are publicly available so one can check the exchange rates for one's transaction if one wishes - One thing to keep in mind, and both networks make this clear on their converters, is that the date of a transaction may not necessarily be the same date that the transaction is processed by one's card issuer, but normally the rates don't change THAT much from day-to-day.

The ways that the entities involved in a credit or debit card purchase or an ATM withdrawl earn their money are:

The merchant that sold the goods earn their revenue from the purchase price less a percentage withheld by the local bank that processes their card transactions - that's why it's not uncommon to see merchants 'tack on' an additional percentage or set a minimum purchase amount for a card transaction. This is technically not allowed by the card network agreements, but merchants do it anyway. In some cases, as was done in the U.S. in years gone by, some merchants offer a discount for cash.

The local bank that processes merchants' card purchases earn a percentage of each transaction which they withhold from the amount deposited in the merchant's local bank account.

The local bank that offers ATM withdrawl services to 'foreign' debit cardholders charge an outright fee - in the PI, it's PHP 250 

The network to which one's card belongs, such as VISA or Matercard, charge a 1% 'network fee' which is passed on to the card issuer and ultimately to the cardholder - the only card issuer of which I'm aware that does not pass on the fee to it's cardholders is Charles Schwab, which 'eats' the fee for it's brokerage account holders who have a debit card for their 'High Yield Investor Checking Account'.

Charles Schwab also rebates all ATM fees, including fees for non-U.S. ATM withdrawls, each month to their debit card users.

Most card issuers also charge a 'foreign exchange conversion fee' which usually runs from 1 - 3% and some issuers include the card network fee in this amount while other issuers break it out. It's not that difficult to find card issuers that don't charge a 'foreign conversion fee' - 'No foreign transaction fee' is a major appeal of Capital One cards, but there are other notable exceptions, such as Chase with their Amazon VISA card and several other cards, the Charles Schwab debit card, and issuers such as USAA and federal credit unions such as Alliant.

Some bank issuers will also charge a 'foreign transaction fee' for situations in which their card is used outside the country of issue but in the same currency as the country of issue or simply because a card is used outside the country of issue even when a 'foreign exchange conversion fee' is assessed.

At the end of the day, speaking solely about a foreign exchange rates, it's almost impossible to beat the rates given by the major credit card networks since they are major players in the forex markets. The misunderstanding comes in when folks mistake the fees charged by their card issuer as a component of the foreign exchange rate - it isn't. In most cases those fees can be minimized or, if one sets up an account with Charles Schwab, eliminated outright or reimbursed.
 

[JJReyes]

The answer depends on the currency used to pay your credit card - Pesos or Dollars. However, at the resort level, have them charge in Pesos. The reason is the resort does not want to absorb any potential loss from currency fluctuation. So they either have a lousy rate or charge an additional fee. 

[Gentleman.Jack.Darby]

28 minutes ago, OnMyWay said:

I've never seen that offered like that.  That is a moneymaking scheme by BDO, the credit card processor for the resort.

They tell you right at the top it will cost you 4.5%, but you really don't know what the base for the 4.5% is.  So you could actually be paying more than 4.5%.  They express the rate in dollars per peso, which most foreigners don't think in.

Their stated rate 0.01988112 is about 50.30 and without 4.5% deducted would be 0.0189864696 or 52.67, so that is the approximate base they used.

The only advantage to choosing dollars would be in the case where you know your CC has a very high foreign transaction fee.  However, I don't know if the currency is the trigger for a foreign transaction fee.  You might get it even if the charge is in dollars.
 

 

The base for the additional 4.5% is the exchange rate set by the card network to which one's card 'belongs', such as VISA or Mastercard.

One's card issuer, merchant, 'foreign' local bank, etc. have no power to set the actual exchange rate for credit and debit card transaction

They do have the power to try and trick folks by tacking on additional fees, which is what dynamic currency conversion is, which a lot of folks mistake as part of the exchange rate but in reality can be avoided with a bit of effort.

[Gentleman.Jack.Darby]

22 minutes ago, JJReyes said:

The answer depends on the currency used to pay your credit card - Pesos or Dollars. However, at the resort level, have them charge in Pesos. The reason is the resort does not want to absorb any potential loss from currency fluctuation. So they either have a lousy rate or charge an additional fee. 

In the OP's case, he wouldn't have been offered the option to be charged in USD (Dynamic Currency Conversion) unless his card was a card issued outside the Philippines.

'Dynamic Currency Conversion'; ie; charging one's card in the home country currency instead of the local currency is a gimmick used by merchants and their local bank to make a little extra from the inexperienced traveler who believes that he needs to worry about currency fluctuations and wants to keep things simple by trying to 'think' in his home currency to determine if a local good or service is 'worth it'.

The only situation, and this is purely a hypothetical, in which dynamic currency conversion could benefit a traveler is if the local currency was appreciating so fast against the traveler's home currency that the slight delay between the time the traveler makes the purchase and the time the transaction is settled by his card issuer is enough to offset the additional cost of the dynamic currency conversion.

Recently, PHP has been weakening against USD,  so a purchase made in PHP today (purchase date) will likely cost less, by the equivalent of an insignificant rounding error, in a couple of days when the card issuers posts (settles) the purchase to the traveler's account. 

If his card was issued by a Philippines bank, it would be 'denominated' in PHP and no conversion would be necessary.

As an aside, even though the OP's card was issued outside the PI, the resort would have no worries about currency fluctuation since the exchange rate would be determined by the card network, VISA in this case, and the transaction 'settled', ie; PHP deposited into their local bank account very quickly - the resort would never actually hold USD nor would they need to.

[OnMyWay]

12 minutes ago, Gentleman.Jack.Darby said:

Foreign currency conversion rates are ALWAYS set by the network to which one's card belongs, such as VISA, Mastercard, or American Express and not by the other entities involved in the purchase or ATM withdrawl transaction.

Great info in your post!  I think I knew about the above fact before but forgot about it.  I guess the reason that CapitalOne always seems like a great rate is that they don't have any other fees mixed in, whereas another Mastercard might have some extra costs melted in.

15 minutes ago, Gentleman.Jack.Darby said:

Charles Schwab also rebates all ATM fees, including fees for non-U.S. ATM withdrawls, each month to their debit card users.

Last time I checked in around 2012, USAA, Fidelity and Schwab would all rebate all debit card fees.  Fidelity was up to 10 per month.  However, I used my Fidelity debit a few times and they took about one peso on the exchange rate.

[Gentleman.Jack.Darby]

3 minutes ago, OnMyWay said:

Great info in your post!  I think I knew about the above fact before but forgot about it.  I guess the reason that CapitalOne always seems like a great rate is that they don't have any other fees mixed in, whereas another Mastercard might have some extra costs melted in.

Last time I checked in around 2012, USAA, Fidelity and Schwab would all rebate all debit card fees.  Fidelity was up to 10 per month.  However, I used my Fidelity debit a few times and they took about one peso on the exchange rate.

USAA and Fidelity pass on the VISA network fee, which is 1%

[OnMyWay]

1 minute ago, Gentleman.Jack.Darby said:

USAA and Fidelity pass on the VISA network fee, which is 1%

Ahh, I see.  Everything is blended together so you can't see that detail in your transaction records.

[Gentleman.Jack.Darby]

1 minute ago, OnMyWay said:

Ahh, I see.  Everything is blended together so you can't see that detail in your transaction records.

It depends on the card issuer - some do show it

[Jeff R Us]

Thank you to all the above for your input. This was an unexpected occurrence at the last minute, hence the use of the credit card. That's what credit cards should be used for. Cash is king!