Royal Bank of Scotland will no longer to able to charge their cardholders fees based on exchange rates determined by them. An investigation by the Guardian in December 2010 brought to light the practice by RBS and its NatWest division of charging their customers a considerably higher exchange rate for transactions carried out overseas than the prevalent market exchange rates.  The investigation revealed that RBS was imposing an additional fee of at least 2% over the published 2.75% foreign exchange fee. This made using RBS and Natwest cards overseas considerably more expensive than those that used standard Visa and MasterCard rates. RBS competes with other worldwide banking institutions and financial services group like Citigroup, Barclays, Bank of America, UBS and JPMorgan Chase.
Our price estimate for RBS stock stands at $13.41, roughly in line with market price.
The issue and the change
RBS had changed the terms of its cards in late 2008 to allow it to use an exchange rate “determined by us”.  The bank also did not publish the exact conversion rates used for overseas transactions, or details about the fees actually charged on such transactions.
However, as customers using RBS and NatWest cards were made aware of the more than 2% extra charges they incur as compared to rival cards, the bank has issued a notice to all its customers that it would be following standard Visa and MasterCard rates from 1st of July this year.
[trefischart ticker=RBS width=350 driver=1779]
What this means for RBS
The decision would directly affect the revenues that RBS generates from its credit card operations. As overseas transactions would now attract lower fees, the revenues would see a decrease. We capture these fees as a part of our forecast for RBS’ fee income.
As the decrease in the net fee income as a percentage of the total consumer loans handled by RBS would be very small, this change represents a negligible impact on our $13.41 price estimate.
- RBS does U-turn on inflated overseas credit card charges, Guardian, May 18 2011 [↩] [↩]
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- exchange rates
- credit card operations
- the Guardian