How to play dynamic currency conversion game

By Emma Lunn

If you're traveling abroad this summer and taking your UK-issued bank card with you, beware of being duped into paying more for your purchases when choosing to pay in pounds sterling rather than the local currency.

Dynamic currency conversion (DCC) allows merchants and ATMs to process card transactions either in the local currency or in the currency of the country that issued the card. For UK travellers, that means they can have their transactions abroad processed in the currency of their current location or in pounds sterling. But paying in pounds may cost you.

Here's how to play DCC to your advantage while on holiday.

Pounds sterling v. local currency
Paying in sterling may seem to have its perks.

"Paying in your home currency can be useful for knowing exactly how much will appear on your statement when withdrawing cash at a cash machine or paying for goods or services abroad," says Sarah Treadwell Jones, a spokeswoman for the UK Cards Association. currency-conversion

She cautions consumers to make sure the exchange rate used in the conversion is competitive, however. The rate used by the retailer may not be as favourable as that offered by your card company. That's because merchants using DCC often do so to earn a little extra money -- either through an exchange rate stacked in their favour or via extra conversion fees. In fact, companies offering DCC services to merchants often tout these benefits.

DCC typically costs between 4% and 6% of the charged amount, according to research by Escape Travel Money Card (a provider of prepaid cards for travellers), but there are examples of much higher markups. One user on the Business Traveller Asia discussion boards reports being charged €112.46 for a 731 krona bill in Sweden. The true exchange rate at the time would have been nearer to €87, meaning the mark-up was close to 30%.

The problem is that merchants may not fully explain the extra costs to customers, who would often be better off paying in the local currency and letting their card companies work out the exchange rate. Details about the exchange rate and fees must be disclosed on the receipt (in fact, it's required by the card networks' rules, according to Visa). But consumers don't see the receipt until after the transaction has gone through.

According to Andrew Brown, head of Post Office Travel Money, Post Office research shows that 7% of consumers fall into the trap of agreeing to pay in pounds sterling without realising the fees involved.

"Our advice is always to pay in local currency whether using a credit or debit card or a pre-paid card," Brown says.

Tips for navigating DCC during your travels
The Escape Travel Money Card research found that although DCC happens all over the world, it's most common in Spain and Thailand, especially in shops and restaurants. You may also encounter DCC at both stand-alone ATMs and at ones at major banks.

Because retailers make money from DCC, some less scrupulous ones may not tell you that you have the option of paying with a UK card in the local currency. If you have not been given the option and the amount appears in sterling on your transaction slip, you can ask to cancel the transaction and start again in the local currency.

"If a retailer has the facility to carry out a DCC transaction and wants to offer it, they need to tell the customer at the point of sale that they can pay in either their own currency or the local currency," Treadwell Jones says. "There are very strict Visa and Mastercard rules that say the customer must be offered the choice and provided with information on the exchange rate to be offered and if there is a commission included within that rate."

If English isn't widely spoken in the country you're visiting, it can be handy to learn the translation for "I would like to pay in the local currency please" before you go. Alternatively, you could write down the phrase in the relevant language and take a printout with you.

See related: Currency cards can ease travel hassles, Credit card travel insurance could protect you from holiday nightmares


Published: 23 April 2013