Question: In your previous post 'Pay in Euros or Dollars' you outlined the perceived difference and allayed my concern on that subject. However, can you tell me what actually happens when my US issued credit card is charged either in US Dollars or Euros? How is the rate of exchanged determined?
Answer: Great question! I will outline the procedure of credit card processing to give you some idea of how it works both here in the USA and internationally.
All credit card transactions whether here in the USA, Ireland Germany or anywhere are processed through 'merchant card processing entity' which is typically a division of a major bank. The vendor, be it Safeway, Texaco, Imperial Hotel, Mrs. Murphy's B&B or Hertz does not set currency rates on credit card charges, the 'merchant card processing entity' does. The vendor has NO CONTROL over the 'merchant card processing entity.' When your transaction is charged in Euros by Hertz at the end of your rental it is then processed by a 'merchant card processing center,' they credit Hertz with the euro amount and then send that charge on to your bank to be charged against your credit card statement. It is at that point when the conversion is made.
Exchange rates fluctuate every second of the day and can be 1.12454 on a Friday and open at $1.15567 on a Monday morning. If your transaction is being processed by the 'merchant card processing entity' at that moment you will receive an exchange rate of $1.15567 even if later in the day or the next day the exchange rate comes down to $1.12454.
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