Icelandic cardholders face high foreign-currency fees in the Nordics

Icelandic card issuers charge a foreign-currency surcharge of 2.5 to 3 per cent when customers use their cards elsewhere in the Nordic countries, among the highest rates in the region, mbl.is reports. The finding comes from a new report by the central banks of Iceland, Denmark, Finland, Norway and Sweden on the cost of cross-border card use and international transfers.

Tómas Brynjólfsson, deputy governor for financial stability at the Central Bank of Iceland, said the fees may have limited impact on individual consumers but can add up across entire economies. Easier access to other markets for buying and selling supports productivity and economic growth, he said, comparing currency surcharges to sand in the gears of business.

Brynjólfsson said the reasons for the high charges are varied. They partly reflect the systems financial institutions have established, while Iceland’s shallow foreign-exchange market can also mean a wide gap between buying and selling rates.

He said newer banks have found ways to lower the charges. The report reviewed the published fees of Iceland’s three largest commercial banks but did not include savings bank Indó, which has focused on low foreign-currency surcharges for card use abroad. Competition and new technology are helping reduce costs, he said.

One potential development is Iceland’s participation in TIPS, the euro system’s real-time payment system. The central banks of Iceland and Europe agreed on this in the summer. TIPS includes a currency exchange function that Iceland is considering adopting, which could potentially reduce the surcharge, Brynjólfsson said.

He also pointed to European Union rules that limit the cost of euro payments between EU countries to no more than the cost of domestic euro payments. An Icelander could convert krónur into euros, send the euros to a recipient in another Nordic country without a transfer charge, and let the recipient exchange them into the local currency. This could cost less than sending Swedish, Danish or Norwegian currency directly. Sweden has used the European legislation to limit the cost of international transfers in Swedish krónur, he said.