Europe has a legal cap (0.9%) on the fee the credit card companies charge to the merchants. In the US there is no limit, so merchants get hammered with fees of ~3โ5%. US credit cards often offer a 1% kickback to cardholders for using their card. Some credit cards offer as much as 5% as a kickback on certain categories of purchases, like groceries. Some credit cards also charge a zero percent markup on foreign currency exchange.
So if you use a forex-free card with rewards in Europe on a purchase that has a rebate that exceeds 1%, the merchant only absorbs 0.9% of the cost. The bank loses 4.1% on a 5% rebate.
Or am I missing something? The bank obviously still profits from purchases in categories with a lower rebate, and late fees and interest.. but of course only if you make that happen.
If you're in that demographic, you can make the bank lose money, only while you're traveling, and only in Europe. They clearly don't care about it, because if the effect was significant enough to matter, they would change their policies.
As it is, it's an incentive to become a customer, and they're ok losing $100 while you travel so they can collect $1000 while you don't.