Dynamic currency conversion
Encyclopedia
Dynamic Currency Conversion (DCC) or Cardholder Preferred Currency (CPC) is a financial service in which holders of credit card
s 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 provides for multi currency transactions for ecommerce merchants.
Explanation of DCC=
DCC provides consumers with a rate of exchange at point of sale rather than waiting for a statement at the end of the billing cycle. The calculation of currency exchange is not computed by the issuer of the credit card but by the merchant who can set the rate of exchange. There has been controversy because some merchants have run dynamic currency conversion without giving the option to the cardholder or charge rates far in excess of what a bank might charge.
Interbank for the exhange rate of transactions, and offer chargeback programs if a better rate can be shown to exist during the day of the purchase. If the wholesale rate is used, the customer benefits from transparency and certainty.
To deter customers from requesting compensation for getting unfavorable conversion rates later, some providers employ a disclaimer comparable to the following (taken directly from included receipt scan), that is printed on the credit card slip:
"I DECLARE THAT I HAVE BEEN GIVEN CHOICE OF PAYMENT CURRENCY. I AGREE TO PAY THE ABOVE TOTAL AMOUNT AND ACCEPT THAT THE CHOICE OF CURRENCY IS FINAL. I UNDERSTAND THAT THIS FACILITY IS PROVIDED BY THE BANK AND NOT THE CARD ASSOCIATION"
An advantages to the Customer include:
Disadvantages to the Customer include:
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
s have the cost of a transaction converted to their local currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
when making a payment in a foreign currency. Currently this feature is only possible for Visa
VISA (credit card)
Visa Inc. is an American multinational financial services corporation headquartered on 595 Market Street, Financial District in San Francisco, California, United States, although much of the company's staff is based in Foster City, California. It facilitates electronic funds transfers throughout...
and MasterCard
MasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
networks. American Express provides for multi currency transactions for ecommerce merchants.
Explanation of DCC=
DCC provides consumers with a rate of exchange at point of sale rather than waiting for a statement at the end of the billing cycle. The calculation of currency exchange is not computed by the issuer of the credit card but by the merchant who can set the rate of exchange. There has been controversy because some merchants have run dynamic currency conversion without giving the option to the cardholder or charge rates far in excess of what a bank might charge.
Advantages and Disadvantages for Customers
In a typical transaction situation, cardholders are handed their receipt with an option to sign for the amount in the foreign currency or their home currency. Depending on the service provider, an explanation of the exchange rates are included (as shown on the scan displayed in this article) along with the prevailing rate of the day. The rates used, however, may or may not be based on the wholesale rate; this is dependent on the DCC provider. Some providers use ReutersReuters
Reuters is a news agency headquartered in New York City. Until 2008 the Reuters news agency formed part of a British independent company, Reuters Group plc, which was also a provider of financial market data...
Interbank for the exhange rate of transactions, and offer chargeback programs if a better rate can be shown to exist during the day of the purchase. If the wholesale rate is used, the customer benefits from transparency and certainty.
To deter customers from requesting compensation for getting unfavorable conversion rates later, some providers employ a disclaimer comparable to the following (taken directly from included receipt scan), that is printed on the credit card slip:
"I DECLARE THAT I HAVE BEEN GIVEN CHOICE OF PAYMENT CURRENCY. I AGREE TO PAY THE ABOVE TOTAL AMOUNT AND ACCEPT THAT THE CHOICE OF CURRENCY IS FINAL. I UNDERSTAND THAT THIS FACILITY IS PROVIDED BY THE BANK AND NOT THE CARD ASSOCIATION"
An advantages to the Customer include:
- Being able to pay in his own currency when being unaware of the exchange rate
- The ability to enter expenses more easily (i.e. business travelers)
- Some issuing banks may not charge the foreign usage fee if the transaction is processed in the cardholder's home currency
Disadvantages to the Customer include:
- Consumers typically pay inflated exchange rates compared to the wholesale rate that would otherwise applied.
- Many customers are critical of DCC as a method to top up profits from credit card transactions. On RyanairRyanairRyanair is an Irish low-cost airline. Its head office is at Dublin Airport and its primary operational bases at Dublin Airport and London Stansted Airport....
flight purchases in particular, consumers spend up to 7% more per booking by using DCC. It is important to note, however, that RyanairRyanairRyanair is an Irish low-cost airline. Its head office is at Dublin Airport and its primary operational bases at Dublin Airport and London Stansted Airport....
also charges extra fees simply for booking with a credit card - Many issuing banks apply the foreign usage fee regardless of the currency that is processed, resulting in a very high fee for cardholders, though this practice is quickly becoming obsolete due to customer dissatisfaction