Dynamic currency conversion is a function on some credit cards that converts local monetary 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 he is committed to it. This is primarily a way of safeguarding travelers from incorrect or over 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 begin, a merchant signs up for the dynamic currency conversion program, either through a third party or directly with a credit company. Merchants are then in direct control over the conversion rate used by their credit systems. While they can set the rate to nearly anything, the majority of 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 she opts out, the transaction will go through normally and purchases will appear in the local currency of the card’s holder on the monthly statement. The printed receipt will typically use the terminal’s local currency. This process uses the conversion rate set by the card’s issuer or associated bank, typically the wholesale rate.
If a customer decides to use dynamic currency conversion, the receipt will have the sale total in local currency, including all applicable fees, and the total in the card holder’s local currency. This conversion rate comes from the terminal itself and bypasses the card’s issuer. These receipts will typically have a dynamic currency conversion disclaimer that prevents the customer from asking for a chargeback.
This disclaimer is very important to the store owner as dynamic currency conversion can have some major drawbacks on the customer side. Dynamic currency conversion is supposed to provide a ‘peace of mind’ service to travelers since they will always know exactly how much they are paying. In addition, it simplifies expense reports as all receipts have the cardholder’s local currency printed right on them. In reality, some merchants use this service as a way to overprice their goods.
There are two main points of detraction when dealing with dynamic currency conversion. First, the merchant sets his own exchange rate. If the terminal owner decides to charge a totally different rate from the real rate, he can. Second, there are fees associate with using the service that are added directly to the cardholder’s bill. When these two things come together, it is possible for the customer to end up paying significantly more with the program than without it.