Dynamic Currency Conversion

Dynamic Currency Conversion (DCC) or Cardholder Preferred Currency (CPC) is a financial service in which cardholders have the cost of a transaction converted to their local currency when making a payment in a foreign currency. Currently, this feature is only possible for Visa and MasterCard networks. American Express cards are unable to have dynamic currency conversion applied.

For example, the following is a typical Dynamic Currency Conversion transaction at point of sale. A cardholder (say, from the United States) that is traveling in Europe presents a Visa/MasterCard for payment for a product/service priced in Euros. The credit card details are captured on the point-of-sale device (POS), which identifies that the card is a USA-issued card. The cashier asks the cardholder to pay in US dollars and the POS converts the euro amount into US dollars (based on a conversion rate ascertained by the merchant). This exchange rate is manipulated in order to take more money from the cardholder than the true conversion would require. The cardholder signs a receipt that shows the euro amount, rate of exchange, and the US dollar amount. The service guarantees that this exact US dollar amount will be debited to the cardholder account, and the exact euro amount will be credited to the merchant’s account, to the benefit of the merchant.

Increasingly, Internet sites and mail order companies are also offering this service and virtual terminal services. In some cases, the cardholder may not even be aware that they are being charged in their home currency, in a process known as “back office DYNAMIC CURRENCY CONVERSION”. This practice has been outlawed by all credit card organizations, and participating banks and merchants can expect serious penalties imposed by card organizations.

Among the biggest advantages of Dynamic Currency Conversion to travelers, according to its proponents, are the following:

  • The visibility of charges made in foreign countries
  • The ability to enter expenses more easily (for business travelers)
  • EU regulation 2560/2001 could make non-Eurozone cash withdrawals cheaper for Eurozone customers, because euro cash withdrawals are regulated

Some providers of Dynamic Currency Conversion guarantee better exchange rates than customers would get from their card providers or other virtual terminals, making it a quite compelling option for consumers, especially given the supposed transparency of seeing the exact rate of exchange at point-of-sale rather than waiting for a statement at the end of the month. This perceived transparency, however, is merely the cost of the service, as the cardholder is truly paying more money in the end.

Many website merchant account businesses will unlawfully run a charge with dynamic currency conversion without giving the option to the cardholder. Cardholders are sometimes unaware of rates and margins used (whereas the cardholder already knows the charges issued by the card provider, if any even exist) until they are handed a slip to sign in their home currency with an explanation of the extra fees tacked on. Furthermore, many of those card providers that do charge foreign transaction will charge fees even if the charge is in the home currency but in a foreign country (meaning that the cardholder would have fees from the DYNAMIC CURRENCY CONVERSION converter company and the card provider).

When cardholders are not given the option to choose the local currency until they are handed the slip to sign, this presents a difficult situation. Knowledgeable cardholders who realize the financial disadvantage of Dynamic Currency Conversion usually ask for this initial charge to be voided, and then for the charge to be run again using the local currency. Merchants sometimes will hesitate or unlawfully refuse heed the consumer's request, attempting to prey upon the ignorance of foreign travelers to increase profits. Margins added in Dynamic Currency Conversion are almost always higher than any currency conversion fee charged by the card issuer (which in some cases is zero), so it is almost always profitable for merchants to use DCC; conversely, it is almost always more beneficial for cardholders to transact in the local currency and let the card issuer do the conversion rather than in their home currency using dynamic currency conversion.

The cardholder often ends up paying an exorbitant fee for Dynamic Currency Conversion, even if it seems the conversion rate makes the DCC a better option. The Dynamic Currency Conversion provider takes a large cut of this fee and the merchant usually gets a better rate on their transactions as the exchange rate given to the cardholder is not the real exchange rate. Faced with declining revenue from foreign transaction conversions, many credit card issuers now charge fees on all foreign and virtual terminal transactions, regardless of currency.

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