Dynamic currency conversion
From Wikipedia, the free encyclopedia
Dynamic Currency Conversion (DCC) 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 available for Visa and MasterCard networks only.
For example, the following is a typical DCC transaction at point of sale. A cardholder (say, from the United States) is traveling in Europe presents Visa/MasterCard for payment for a product 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). 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.
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.
Opponents argue that often the cardholder may not be asked if they wish to pay in their home currency and that cardholders are sometimes unaware of rates and margins used (though this is also the case where the credit card company makes the conversion). Margins added in dynamic currency conversion are sometimes higher than any currency conversion fee charged by the card issuer (which in some cases are zero). Here is a reported example of such a high margin being applied in the Washington Post. It therefore sometimes costs card holders less to transact in the local currency (and letting the card issuer do the conversion) rather than in their home currency (using dynamic currency conversion). In the majority of cases where the customer has the choice the rate will be similar to the Credit Card companies rate or better.
The main 'losers' from this system are the credit card companies themselves, 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
- Travelex
- Pure Commerce
- FEXCO DCC
- FINTRAX
- Planet Payment
- Monex Financial services
- Global Currency Exchange
- Chase Paymentech
The main providers for the Card Not Present Environment (Internet) are
- Travelex
- Pure Commerce
- Global Currency Exchange
- FEXCO DCC
- Planet Payment
- Monex Financial services
- Chase Paymentech
