What is Dynamic Currency Conversion offered by Visa and MasterCard, how it works?

9 June 2017

The number of international travelers around the world is extremely growing year by year. As a result, an increasing number of non-domestic Visa and MasterCard credit and debit cards are accepted by resort businesses. To make the procedure of card transactions as convenient and easy as possible, and, in addition, to improve consumer experience, many merchants choose to implement an option known as Dynamic Currency Conversion.

What is Dynamic Currency Conversion?

Dynamic Currency Conversion (DCC) or Cardholder Preferred Currency (CPC) is a finance option, whereunder Visa or MasterCard credit card owners have the cost of transaction translated to the local currency at the retail location, when making a payment abroad.

The idea behind DCC is pretty simple. While a shopper makes purchases overseas, a merchant might ask whether cardholders wish to be charged in the local currency or their home currency. In the event they prefer to pay in their home currency, the seller translates the purchase from the local currency on their behalf.

It should be noted that DCC system is totally operated by third party providers. Credit card companies do not supply cardholders with a DCC function at the point of sale, and allow DCC operators to provide currency exchange in line with their card processing regulation. The DCC provider ensures that the sum in the cardholder’s currency is debited to the cardholder’s account, while the merchant’s account is credited with the amount in the local currency. In addition, DCC runs the same way as online payments do, and enables cash withdrawals at ATMs.

Dynamic Currency Conversion

Benefits of utilizing DCC

Undoubtedly, both consumers and businesses benefit to some extent from using DCC. Among strong points of the service, the following can be highlighted:

Customer awareness of exact pricing. The service allows customers to be aware of what they are paying in the course of dealing rather than waiting for the charge to post online or show up in a monthly credit card statement.

Another advantage is enhanced booking experience due to the ability of paying in the currency known to a consumer.

Besides, at DCC competitive exchange rates are practiced.

What are the pitfalls of DCC?

For avid travelers and people who are used to currency translation fees hitting their wallets hard, DCC may seem an incredibly attractive service. However, as a matter of fact, there are three ways consumers may get stung by fees for using DCC:

Currency conversion fee. First, relying on DCC does not practically help customers to get away currency conversion fees. DCC often comes with a currency conversion fee that can be approximately from 5 to 10 percent, and this fee may not be disclosed to consumers.

Exchange rate. Second, the price of the goods or services still has to go through an exchange rate to be translated, and the pre-set credit card exchange rate is usually not in cardholders’ favor. Moreover, customers are not usually told what exchange rate is established with DCC until they see the detail on their credit card statement.

Foreign transaction fee. And the last thing, despite the fact that card owners make transactions in local currency, their bank may recognize it as a transaction originating from outside the country visited, and charge a foreign transaction fee for it.

Roughly, the fee is split three ways: between the card issuer (the bank), the merchant (who bills for their goods or services) and the DCC provider (a middleman who arranges the deal).

Foreign transaction fee

Ways to avoid fees

Apply for a no foreign fee credit cards. Avoiding DCC and using a credit card without a foreign transaction fee, consumers can save an extra 10 percent (7 percent from DCC plus 3 percent foreign transaction fee) on each purchase.

Always refuse DCC. Use a card that does not charge foreign transaction fees. Always pay in local currency when travelling, to avoid DCC. This eliminates any uncertainty associated with the cost of the service.

Beware of deceptive ATMs. Some independently owned ATMs offer DCC, but disclose it ambiguously. To mask the service, they might offer to “lock in” or “guarantee” a conversion rate. Consumers instead should select the option to “proceed without conversion”. Always press NO and select the local currency.

Download a converter application. To avoid being duped at the checkout counter, download a currency converter app on a smartphone.

Dynamic Currency Conversion might not be considered as travel frauds, but it is an easy way for international visitors to go over their budget. Knowledge leads to half the battle, or even more in this case. Therefore, it is up to cardholders to stay updated in order to effectively escape paying dynamic currency conversion fees whenever possible.

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