Dynamic Currency Conversion

When it comes to making international purchases with a credit card, there are a number of ways uninformed travelers get hit with additional fees. “Dynamic conversion” is a new option for travelers to be aware of – especially since it that can add exponentially more to the overall price of the purchase. In fact, the fees can be so extreme that some consumer advocates have taken to calling “dynamic currency conversion” a scam. Although fees are added to the purchase in such a way that consumers have almost no way of knowing the actual total fee paid, the practice is legal almost everywhere in the world.

"Dynamic conversion" works by allowing foreign merchants to calculate your bill and charge you in U.S. dollars rather than the local currency. “Dynamic currency conversion” occurs at the point of sale (POS) with an exchange rate determined by technology partners through the merchant’s bank. These partners offer “dynamic currency conversion” as a service to merchants that enable them to profit from the currency exchange. (The only way to know the actual rate being charged is to ask the merchant exactly how they’ve arrived at the final price being paid). Some people wrongly assume that credit card issuers are the big losers with “dynamic currency conversion.” They believe that since the purchase is made in U.S. dollars they won’t also be charged a conversion fee by the credit card company. However, many credit card issuers charge their foreign transaction fees simply for making a purchase in a foreign country. This is why they’ve recently taken to calling the fees “foreign transaction fees” rather than “foreign conversion fees.” As such, the actual fee paid by the consumer is compounded, and the only loser is the buyer. In essence this means that unassuming buyers are paying multiple conversion/transaction fees for the same purchase.

“Dynamic currency conversion” fees can only be added to Visa and MasterCard credit and debit card purchases. AmericanExpress cards use a “closed system” which does not allow technology partners and issuing banks to add fees to transactions. As such the maximum fee with an AmEx card is 2% of the purchase. With Visa or MasterCard the total fee for a DCC transaction usually ranges between 3-10% depending on the DCC fee charged by the technology partner and the fee charged by the bank issuing the credit card.

Depending on the merchant, “dynamic conversion” isn’t always the “scam” that some make it out to be. That said, the fee is almost always higher than it would be to avoid “dynamic conversion” and just use a credit card with a low transaction fee. To avoid the threat of DCC altogether, AmericanExpress cards are the only option.

More Information:
Keeping ‘em Honest…
Directory of credit card foreign transaction fees.
Special offers from credit cards with LOW conversion fees.

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