Dynamic Currency Conversion (DCC): Definition and How Fees Work

What Is Dynamic Currency Conversion (DCC)?

Dynamic currency conversion (DCC) is a credit card feature that allows you to make a point-of-sale (POS) credit card purchase in a foreign country using the currency of your home country; it is also known as cardholder preferred currency (CPC). While this makes it easier to understand the price you are paying—and lets you avoid doing the currency conversion math—the service often comes with a poor exchange rate and other fees that can make the transaction more expensive than if you simply made it in local currency in the first place.

Understanding Dynamic Currency Conversion (DCC)

If you’ve traveled abroad or shopped online on a foreign website, you’re probably familiar with the fact that credit cards and ATMs charge a fee for most transactions. Dynamic currency conversion (DCC) is simply one type of currency conversion fee.

Most currency conversion fees are levied by the credit card payment processor (usually Visa or MasterCard) or ATM network. DCC fees are levied by the merchant, typically through a service provider.

DCC transactions sound attractive because the currency conversion takes place in real time at the POS. Credit card currency conversions don’t reveal the cost until you go online or receive your statement in the mail.

Unfortunately, the apparent transparency that you get with DCC comes at a stiff price. First, the exchange rate will include a markup to the merchant and/or service provider that makes the rate much less attractive than the market rate at the time. Second, there may be additional fees, and, finally, you will still have to pay a foreign transaction fee to your credit card provider if it charges that fee.

DCC vs. Currency Conversion

Currency conversion is the process of converting one form of currency to another. DCC is a specific type of currency conversion. When either type is applied to a financial transaction, there is usually a charge (fee). When the conversion is done by a credit or debit card payment processor, i.e., Visa, MasterCard, or an ATM network, the fee is usually 1% of the amount of the transaction. This charge is often added to the processor’s foreign transaction fee, raising the total to between 2% and 3%.

DCC is an optional service offered by foreign merchants at the POS that lets you see the cost of your purchase in your home currency, i.e., U.S. dollars. Unfortunately, DCC comes with a high currency conversion rate and additional fees that can make the transaction very expensive. One European study found exchange rate markups of from 2.6% to 12%. As DCC is optional, you have the right to decline it when offered.

If you agree to DCC when you make the purchase or withdrawal, that exchange will also be subject to any foreign transaction fee levied by your credit card, debit card, or ATM network. This could result in fees of up to 7% or more.

Advantages and Disadvantages of DCC

DCC has advantages that some people find helpful, but there are also disadvantages that could easily outweigh them.

Here are the details.

Advantages

• The exchange rate is locked in. DCC locks in the exchange rate at the POS. When you make a transaction and accept DCC, the exchange rate used is the current market rate (plus a markup for the vendor and/or service provider). Credit card exchange rates aren’t locked in until the transaction is processed, usually days later. If the DCC exchange rate (including markup) is better than the exchange rate when the transaction is processed, you could save money.
• You have transparency in real time. If you opt for DCC, the currency conversion happens in front of your eyes, and you know the exchange rate you are paying immediately. Credit card companies are not required to disclose the exchange rate.
• It makes price comparison easier. As most people understand their own currency better, comparison shopping is likely easier with DCC.

Disadvantages

• The markup is unknown. Although DCC vendors are required to disclose the exchange rate, they are not required to disclose the markup above the current market exchange rate. Unless you have a currency exchange app, you may not know how much above the market rate you are paying.
• Transaction fees will still apply. People often believe that by selecting DCC at the POS, they won’t have to pay the foreign transaction fee levied by their credit card. This is not true. Most credit cards charge a fee on each transaction that has nothing to do with converting the currency.
• The foreign transaction fee may be higher. If the DCC conversion rate is higher than that available through your credit card, your foreign transaction fee will also be higher.

How to Avoid DCC

As DCC is almost always more expensive than credit card currency conversion, it makes sense to avoid it. Theoretically that should be easy, as DCC is an optional service and you have to opt in for it to take effect.

Your first line of defense is to “just say no.” Decline DCC when it is offered. Keep in mind that the merchant will probably not call it DCC. Instead, you will be asked if you want the transaction in local currency or dollars. Choose local currency.

In addition to declining DCC, make sure the credit card you use does not charge a foreign transaction fee. You may have to shop around a bit to find such a card, but they are available. This way the only fee you are likely to pay is the credit card currency conversion fee.