Processing a credit card charge for overseas purchases used to be pretty simple. You swiped your card while on vacation, your bank changed the money from pesos or euros into greenbacks, and the amount you’d spent appeared on your bill. Maybe you paid a small conversion fee, but you also got a competitive exchange rate.
Not anymore. Just ask Jae Cuadra, who recently tried to buy a round-trip train ticket between the Swiss cities of Interlaken and Lauterbrunnen. The purchase, at a train station in Interlaken, went on his Capital One Visa card, which doesn’t charge to convert foreign currencies. But “for the first time, I was offered a choice,” says Cuadra, a registered nurse from Westbury, N.Y. “Did I want to pay in dollars or Swiss francs?”
Cuadra was being offered a service called a dynamic currency conversion (DCC), in which merchants process a charge in a cardholder’s home-country currency rather than in the merchant’s transaction currency. In a DCC, a company converts the purchase price of a ticket or hotel room from, say, euros to dollars directly at the point of sale. But if you’re not careful, a DCC can cost you a lot more than you expected.
DCC offers are becoming increasingly common, according to travelers and industry experts. You’re more likely to run into them on Visa and MasterCard transactions overseas; American Express currently doesn’t allow such conversions on most of its cards, according to a company spokeswoman.
Why bother offering this service to travelers? The answer becomes clear when you read the promises made by companies that allow merchants to run DCC transactions and when you ask travelers to do the math: money.
As one third-party provider of dynamic conversion services promises prospective merchants on its Web site, “You will generate revenue on every DCC transaction.”
How so? Because merchants can charge for making the conversion. Cuadra says that he “hastily” and reflexively opted for dollars when he bought his train tickets. When he looked at his receipt afterward, he discovered a markup of 3 percent on the international conversion. “I ended paying more in dollars than if I’d paid in local currency,” he says.
How much you stand to lose on each conversion depends not only on the company but also on your bank. Cuadra used a card that doesn’t charge to convert francs to dollars. Other cards do — anywhere from 1 to 3 percent. The DCC charge is on top of that.
But if you want to avoid extra fees, “the most effective way to pay is either with cash in the local currency or make sure that your charges are in the local currency,” says Andrew Coggins, who teaches international management and hospitality and tourism management at Pace University.
Cuadra’s conversion didn’t happen by the book, according to a Visa representative. He should have been told about the 3 percent DCC before he paid for his tickets. “Visa requires retailers to disclose currency conversion rates plus any associated fees and ensure that cardholders are offered a choice to accept the DCC services,” says Visa spokeswoman Sarah Pew. “Merchants must only do DCC with express cardholder agreement.”