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Dynamic currency conversion is a credit card feature that converts local currency into the card’s country of origin before the user signs the receipt. It is primarily used to protect travelers from incorrect or inflated prices, but merchants can set their own exchange rates and fees, potentially resulting in higher costs for the customer.
Dynamic currency conversion is a feature on some credit cards that converts local currency values into the form used in the card’s country of origin, before the user signs the receipt. This allows the user to make an informed decision on the price of the purchase before committing to it. This is primarily a way to protect travelers from incorrect or overly inflated prices while traveling. The service is only available on Visa and MasterCard credit cards, although other card companies sometimes offer similar services.
For the most part, dynamic currency conversion is a very simple operation. To get started, a merchant signs up for the dynamic currency conversion program, either through a third party or directly with a credit company. Merchants then have direct control over the conversion rate used by their credit systems. While they can set the rate to almost anything, most users will use the wholesale conversion rate or the rate set by Reuters.
When a customer uses a credit card on an activated system, they will have the option of using dynamic currency conversion. If opted out, the transaction will proceed as normal and purchases will appear in the cardholder’s local currency on the monthly statement. The printed receipt will generally use the local currency of the terminal. This process uses the conversion rate set by the card issuer or partner bank, usually the wholesale rate.
If a customer chooses to use dynamic currency conversion, the receipt will have the total of the sale in the local currency, including all applicable fees, and the total in the cardholder’s local currency. This conversion rate comes from the terminal itself and bypasses the card issuer. These receipts will usually have a dynamic currency conversion disclaimer that prevents the customer from requesting a chargeback.
This disclaimer is very important for the store owner, as dynamic currency conversion can have some major drawbacks on the client side. Dynamic currency conversion is supposed to provide a “peace of mind” service to travelers as they always know exactly how much they are paying. Plus, it simplifies expense reporting as all receipts are printed in the cardholder’s local currency. In reality, some merchants use this service as a way to overprice their products.
There are two main points of detraction when it comes to dynamic currency conversion. First, the merchant sets his own exchange rate. If the terminal owner decides to charge a rate that is totally different from the actual rate, he can do so. Second, there are fees associated with the use of the service that are added directly to the cardholder’s bill. When these two things come together, the customer may end up paying significantly more with the program than without it.
Smart Asset.
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