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 ~3—5%. 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.
The bank expects to make money when you don't pay off the monthly balance and they hit you with 27% interest.
Diligent consumers don’t do that. They pay their bill off faster than fees can be incurred. It’s the other consumers, the undisciplined and the poor, who get sucked dry by fees. These are not the demographic of international travelers. One demographic is subsidizing another.
The interesting thing is that if you’re in the diligent demographic, you can make the shitty bank lose money. Profit from those they exploit is the same whether you create a loss for the bank or not.
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.