Dynamic currency conversion

From Wikipedia, the free encyclopedia

  (Redirected from Dynamic Currency Conversion)
Jump to: navigation, search

Dynamic Currency Conversion (DCC) or Cardholder Preferred Currency (CPC) is a financial service in which holders of credit cards 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 have the benefit of being unable to have dynamic currency conversion applied.

For example, the following is a typical DCC 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 margined daily rate). This exchange rate is a manipulated exchange rate in order to take more money from the cardholder. 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. 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 DCC". However, "back office DCC" has been outlawed by all card schemes and participating acquiring banks and merchants can expect serious penalties imposed by the card schemes.

Among the biggest advantages to travellers according to proponents:

  • the visibility of charges made in foreign countries
  • the ability to enter expenses more easily (for business travellers)
  • a comparable or less expensive fee than the currency conversion rates charged by credit card companies

Some providers of dynamic currency conversion also guarantee better exchange rates than customers would get from their card providers, making DCC quite compelling for consumers, given the added transparency of seeing the exact rate of exchange at point of sale rather than waiting for a statement at the end of the month. However this transparency is merely the cost of the service, as the cardholder is truly paying more money.

Many merchants 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 DCC 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 entails a tough situation. Knowledgeable cardholders who realize the financial disadvantage of DCC usually ask for this charge to be voided and then for the charge to be run again using the local currency. This often causes problems as merchants sometimes will hesitate to do this or unlawfully refuse. Margins added in dynamic currency conversion are almost always higher than any currency conversion fee charged by the card issuer (which in some cases are zero).[1]. It is therefore almost always more beneficial for card holders 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 a high fee for the dynamic currency conversion. The DCC 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. The credit card companies themselves also are hurt by DCC, who no longer reap a profit from currency conversion whenever DCC is used. For example in 2002 Visa and MasterCard reaped $3.6 billion in currency conversion fees (Business Travel News 2003), and DCC providers are increasingly taking a cut of this.

The main providers for the Card Present Environment (POS) are

The main providers for the Card Not Present Environment (Internet) are

[edit] References

  1. ^ Charge it... but check the math, Gayle Keck and R. Paul Herman, Washington Post, 31 July 2005.

[edit] External links

Retrieved from "http://en.wikipedia.org/wiki/Dynamic_currency_conversion"
Personal tools