Dynamic Currency Conversion (DCC) - why is this valuable customer benefit so misunderstood?

Recently I was at the counter in a shop in London and I was given the option to pay for my purchases in Euro as I had issued an Irish credit card for the payment.  In moments like this, without a currency converter to hand, it can be tricky to figure out exactly what you are paying for the item in your home currency versus what it would cost if I paid in Sterling.  This can lead to some nasty shocks when statements come through a few weeks later!

With Dynamic Currency Conversion (DCC), customers are given the option to pay in their home currency when transacting abroad.  They can either pay in the original pricing currency or amount, or in the billing currency of their own card.  Not all locations offer this to international shoppers and an offer to avail of DCC will only be made when the billing currency of the customer’s card is identified, and only if the retailer can accept that billing currency.  When the customer’s home currency is presented, the DCC exchange rate will contain an FX conversion margin –this is the DCC profit, which goes to the retailer and the acquirer (and sometimes to a specialist DCC provider as well).

For example, if a U.S. Visa cardholder is in Japan and decides to purchase a souvenir priced at 20yen   the retailer may offer the cardholder the option to pay in USD.  The retailer converts the transaction amount to USD.  The customer actively chooses DCC and agrees to pay the USD amount for the souvenir using the exchange rate provided by the retailer (which will include a % fee for the DCC service).

For the consumer, there is total transparency as they know exactly what they are paying at the time of purchase (instead of seeing this later on their credit card statement).  As they have a choice to use DCC or not, they have control over their finances and as a result greater peace of mind regarding transactions abroad.  It’s a simple and fast way for consumers to make their payments in the currency they know and understand.  So why is this valuable benefit so misunderstood?

Unfortunately there is a certain cohort of retailers / acquirers who exploit this service, charging high service fees which artificially inflate the true price of the goods (I have seen as much as 7% / 8% of the purchase price - or ATM value - in certain cases!)

In particular, airport services have been guilty of this leading to accusations of DCC as a money-making scheme and very customer unfriendly. As always with online and credit transaction, it’s up to us as customers to be vigilant and ensure we accept the terms and rates being offered.   Naturally it’s not something the card associations and card issuers are pushing as it moves profit from them – it redirects revenue earned from currency conversion margins and fees to retailers and acquirers / DCC transaction processors.

In a market where we are continually talking about customer-led services, this should be a great additional benefit for customers.  If the DCC rate is priced reasonably, it should be a straightforward and more economical decision for customers to select it with confidence. For an innovative and customer-centric DCC or acquiring company, there is a real opportunity for a customer friendly and ethical pricing solution, whilst still offering a profitable option for all involved.

In reality the benefits should appeal to customers and retailers alike. Some staff education is involved to properly position and ensure it is sold responsibly.  Customers need to feel comfortable with this service and be sold a fair deal.  For the retailer it means customer convenience at profitable margins.

Whilst the reputation of this service has been tarnished somewhat by some companies persisting on milking the margin, overall if it is positioned appropriately by retailers, and adheres to reasonable margins it should play a more meaningful role in purchasing abroad and be a much better customer proposition.