Dynamic currency conversion (DCC) or cardholder preferred currency (CPC) is a process in which the number of Visa or MasterCard transactions is converted by merchant or ATM to the country's currency of card payments payment at the point of sale.
DCC allows merchants, merchant banks or ATM operators to charge markup at the exchange rate used, sometimes up to 18%. If the DCC markup is less than the card issuer's currency conversion fee, the DCC may benefit the cardholder by allowing them to see the amount their card will charge in the currency of the card issuing country. However, in many cases, the DCC markup is higher than the card issuer's currency conversion fee (which can be zero), thus negating this benefit.
DCC services are generally provided by third party operators that deal with merchants, and not by card issuers. Card issuers do not provide cardholders with DCC options at point of sale, but these two card networks allow DCC operators to offer currency conversions according to their card processing rules.
Without DCC, currency conversion is done by the card issuer when the transaction is charged to the cardholder's statement, usually one or two days later, but for an increase in the number of cards in real time. Although the card issuer will publish the exchange rate used for the conversion on the statement, most do not disclose the exchange rate used to convert a transaction at the time of payment. Visa and MasterCard state that the rates they publish before the transactions sent to the cardholder's statement are indicative, since the rates they use for the conversion in accordance with the date and time of they process the transaction, as opposed to the actual transaction date.
With DCC, currency conversion is done by their merchant or card processor at the point of sale. Unlike credit card companies, DCC operators must disclose exchange rates used for conversion at the time of the transaction in accordance with the rules of credit card companies governing how DCC is offered. The DCC exchange rate should be based on the interbank wholesale rate, which is then applied to additional markup. The visa requires that this markup be disclosed to the cardholder. Credit card companies may still charge extra for fees made outside of the cardholder's home country, even when transactions have been processed in their original currency with DCC.
Supporters of this service believe that customers can better understand prices in their original currency, and this makes it easier for business travelers to keep track of their spending. They also show that customers have full transparency including conversion costs, and can make informed choices on whether to use DCC or not. The financial benefits to their merchants or card processors can be an incentive for merchants to offer DCC even when it will harm customers.
The service opponent believes that the customer does not understand DCC, and points out that the DCC exchange rate markup is largely higher than the DCC card issuer currency conversion cost avoided, and therefore, in almost all cases, selecting a DCC will result in a higher cost to the holder card.
Video Dynamic currency conversion
History
The dynamic currency conversion service was offered in 1996 and is commercialized by a number of companies including Monex and FEXCO financial services.
Before card schemes (Visa and MasterCard) apply DCC-related rules, cardholder transactions are converted without the need to disclose that the transaction is converted to the customer's original currency, in a process known as "back office DCC". Visa and MasterCard now prohibit this practice and require customer approval for DCC, although many travelers have reported that this is not universally followed.
The reason Code of Chargeback Visa 76 explicitly covers the situation where "Card Holder is not informed that Dynamic Currency Conversion (DCC) will occur" or "Card Holder is denied the option of paying in the merchant's local currency". Customers have a strong chance of successfully debating the transaction, especially in situations where they pay by credit card and where Verified by Visa or Securecode is not involved.
Maps Dynamic currency conversion
How it works
DCC is only available in merchants who have signed up for a facility with a DCC provider.
When a customer is ready to pay for the transaction and chooses to pay with a payment card, the terminal where the sale of a DCC merchant determines the card issuing country of the card issuer identification number (the first 6 digits of the card). amount). If detecting a foreign card is in use, then the transaction will be transferred through a DCC provider, which can offer DCC to the customer.
If DCC is being offered, the terminal will also display the number of transactions in the customer's home currency. Visa and MasterCard require the DCC provider to disclose the exchange rate and margin to the cardholder, but not all merchants comply with this obligation, and other card issuers do not have that obligation. Cardholders can then choose whether transactions will be processed in local or home currency.
If the cardholder chooses to pay in their original currency, the DCC provider will cause the cardholder's account to be debited by the amount of the transaction in the home currency, and the merchant account will be credited with the amount in local currency. In regular periods, usually every month, merchants will also be credited with commissions for DCC transactions. Exchange rate risk is borne by the DCC provider, which can carry risks or adjust the hedging arrangements to minimize or transfer those risks.
Some card issuers impose additional foreign transaction fees on DCC transactions, even though they are denominated in the card's original currency.
A practical example
An example difference with DCC can be seen in the following figure, where the same GBP purchase is made twice only after each other: one with DCC and one without DCC. In both cases, the original amount is GB Â £ 6.90 and is paid with a Visa card in EUR currency.
The cost difference can be seen in the customer card statement. With DCC (the left portion of the image above), the amount becomes EUR 8.20, with an exchange rate of 1.1882. The DCC provider, in this example the merchant itself, also revealed that he uses Reuters Interbank Wholesale Exchange plus 2.95%. Without DCC, the amount may vary with fluctuations between the currency of GBP and EUR, but on the date of this transaction EUR 8.04.
In this example, the difference is more than 2%. While this difference may seem small to customers, it can generate large revenue streams for DCC providers and merchants. We should also be aware that even without a DCC card issuer converting the transaction amount using its own exchange rate and margin, which in this example is 1.16522.
Restrictions
The point-of-sale merchant terminal can only detect the country of the card issuer and not the currency of the account to be selected. DCC makes the assumption that the home account currency is the currency of the card issuing country. This assumption may cause the DCC to be offered incorrectly. For example, a DCC-enabled terminal in the Euro Zone will offer DCCs to paying customers with a debit card issued in the UK on a euro bank account. If the customer incorrectly selects DCC, then the first transaction will be converted from EUR to GBP by the DCC provider, and then from GBP back to EUR by UK card issuers, often with markup.
There have been reported cases of point-of-sale terminals that allow merchants to change the number of transactions and currency after the cardholder has entered their PIN and handed the terminal back to the merchant. In this scenario, DCC is done without the cardholder's consent, even though the printed receipt then states incorrectly that the cardholder has given their consent.
DCC on the Internet and ATM
DCC operates the same with Internet transactions. When payment card information is entered to complete the payment, the system can detect the cardholder's home country and offer the payer option cardholders in their home currency.
Many commercial websites can detect the country from which the request has come and quote the price in the case of the claiming country. Often prices in the supplier's local currency are not indicated, and the exchange rate used to convert prices is often not disclosed.
DCC is sometimes also available for cash withdrawals at ATMs.
Impact
DCC has proved popular among merchants as it allows them to profit from foreign exchange conversions that occur during the payment process for foreign credit cards.
Credit card collectors and payment gateways will also take advantage of foreign exchange conversions that occur during the payment process for foreign credit cards when DCC is used. DCC revenue is important to them because it offsets the increase in international interchange fees.
Benefits
The main advantage of DCC is that for non-DCC transactions, the customer does not know exactly the exchange rate that the credit card company (and final charges) will apply until the transaction is removed, so the actual rate is not known to the customer until it appears in the monthly report.
Other benefits to customers, according to supporters, are:
- the ability to see and therefore understand prices in foreign countries in their original currency,
- the ability to enter costs more efficiently and quickly, especially for business travelers, and
- EU Regulation 2560/2001 may make non-eurozone cash withdrawals in the European Economic Area cheaper for eurozone customers as euro cash withdrawals are regulated. A Swedish law (SFS 2002: 598) combined with EU resolution does the same for Swedish cards if the transaction is in SEK or EUR. Generally, eurozone banks charge a fixed fee for non-EEA and non-EUR cash withdrawals while withdrawal of EEA in EUR is free. For example, if a Eurozone card is used for withdrawals in the UK, with DCC there are two options - processing transactions in GBP (exchange rate of card issuer but cash withdrawal fee) or processing transactions in EUR (DCC marked exchange rate but no cash withdrawal fee permanent). For small quantities, the latter option is often cheaper.
For merchants who typically accept credit cards, DCC offers the opportunity to earn margin on transactions without exchange rate risk, which is borne by the DCC operators.
Losses
The main objections to DCC are the unfavorable exchange rates and fees applied to transactions, which result in higher fees on their credit cards, and in many cases customers are unaware of the additional and often unnecessary costs of DCC transactions.
The size of the foreign currency margin added using DCC varies depending on the DCC operator, the card acquirer or the payment gateway and the merchant. This margin is in addition to fees charged by the customer's bank or credit card company for foreign purchases. In many cases, customers are charged more using DCC than if they only pay in foreign currency.
In a nutshell
- Customers should check the spreads that their publishers are charging for their foreign currency transactions and compare them with the basic rates and spreads expressed by the DCC terminal and choose the best option.
- Customers can find DCC to impose on them, with no obvious choice, because merchants can falsely claim that their machine automatically converts purchases to the original currency at the point of sale.
- Credit card disputes may be lengthy and/or impossible if a customer signs a receipt with/without a clear choice.
- Customers should be notified of options that are open to them to choose local currency, and if not they can report the case to their payment scheme customer service.
DCC Provider
The main DCC providers are:
- Alliex Co., Ltd based in South Korea
- German-based ConCardis
- Euronet Worldwide based in the United States
- Ireland-based Continuum Commerce Solutions
- Irish FEXCO Merchant Services
- First Data based in the United States
- Swiss-based Global Blue
- Monex Financial Services based in Ireland
- Planet payments based in the United States
- Premier Free Taxes, part of Ireland-based Fintrax Group
- Six Payment Services based in Switzerland
- Travelex based in the United Kingdom
- Worldline based in the United States
References
External links
- Official Visa rate
- Washington Post article about DCC
Source of the article : Wikipedia
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