With all the modern technology that we have, I am astonished that financial institutions charge such exorbitant prices for currency conversions. My bank, Fifth Third, charges a 3% conversion fee, while Paypal charges about 4%. I know that currency fluctuates - free-floating and managed - but I can't understand why there is such a high conversion fee, let alone a conversion fee at all.

Is there not some central service that tracks current currency rates that banks can use to get currency data? For example, XE has an API (web service) that for $12,000/year gets you live currency data with unlimited requests. But at 3% they would only need $400,000 to recover such an expense; this is purely speculation, but as a major national bank, I would imagine that they have much much more than $400,000 in international transactions per year. This is even more true for Paypal, yet bizarrely their rate is even higher at 4%!

Why do these fees exist? Are there back-end processes and requirements that require financial institutions to pass off the loss to consumers as a fee? Or, is it just to make money on the convenience of international transactions?