The benefits and drawbacks of Dynamic Currency Conversion (DCC)

Dynamic Currency Conversion (DCC) is a system that can be found when people are withdrawing money in foreign countries or paying fees in foreign currencies. It shows the amount in the home currency directly during the withdrawal or payment process and the foreign bank immediately converts the local currency into the home currency at a fixed rate that it determines itself and debits the customer's account. DCC is mainly available for cash withdrawals at ATMs, but also increasingly offered for cashless card payments or online purchases.

The process is called Dynamic Currency Conversion because the providers want to emphasize that the currency conversion is done dynamically during the withdrawal or payment process and the final amount is immediately displayed to the customer in his or her home currency. This initially appears to be an advantage, as customers do not have to calculate the final amount themselves. Compared to the exchange rate calculated by the house bank or card institute without the DCC option, this supposed advantage is a financial disadvantage for the customer.

Financial service providers are behind the DCC application. They define supposedly favorable fixed exchange rates and commissions. In practice, if the customer agrees to the DCC, this can result in exchange rate losses of more than 10 percent compared to the daily rate of the house bank. The main beneficiaries of DCC are financial service providers who market the DCC system, as well as the merchants and ATM operators. They receive a commission for each transaction carried out via DCC and generate additional revenue.

Legal background

Many banks and merchants offer DCC as an option. However, they have to inform the customer about the additional fees. Furthermore, the customer must always have the choice to withdraw money based on the basic exchange rate or pay in local currency and is therefore not obliged to choose the DCC option and pay unnecessary fees.

The redundant additional fees for dynamic currency conversion due to the choice of the DCC option are therefore usually only seen as an unpleasant annoyance. The customer makes a conscious decision for (or against) the option and must bear the consequences. We still find this questionable, as customers are often not aware of the high additional fees and the bad exchange rate they get. Furthermore, often DCC is selected as default withdrawal/payment option and provided in a way that customers get the impression they have mainly advantages when they choose it.

DCC for online purchases in foreign currencies

When carrying out credit card transactions for online purchases, customers can be confronted with DCC, too. There is a legal obligation for acquirers, banks and merchants to provide information regarding the fees when making foreign currency online payments with DCC. The customer always must have the option not to use DCC. However, as DCC is usually preselected and causes extra costs for your customers / participants, we recommend that you ask your acquirer to disable this service. By doing so you can avoid misunderstandings and complaints from your customers / participants. As a merchant, you might make a small commission for each transaction that is carried out via DCC. However, keep in mind that customers have to pay extra and might feel alienated or even complain to you when they find out that the unwanted service comes with a price tag they were unaware of.

Please note:

• If you are a customer in a situation where the question about the DCC conversion option appears during a withdrawal or payment process, we think that it is always advisable to reject it to avoid unnecessary additional fees.
• If you are a merchant, we recommend that you consider carefully whether you would really like to offer the DCC option with a potential merchant commission. This will result in unnecessary fees for your customers and could lead to customer dissatisfaction.

More detailed information about DCC and its advantages and disadvantages can be found on the BEUC (The European Consumer Organisation) website and on Wikipedia.