What is dynamic currency conversion?

If you’ve ever taken out money at an ATM or made a card purchase while traveling, you’ve probably noticed that you ended up paying more in fees. One of these fees is a DCC payment, or dynamic currency conversion. What is dynamic currency conversion, and how does it work? We’ll answer these questions and give you a few tips to avoid paying these extra conversion fees.

What is dynamic currency conversion?

Dynamic currency conversion, or DCC, is a feature built into credit cards that lets you use them abroad in your home currency. When you use your credit card in a foreign country, you can choose at the point of sale to pay in USD. This can be appealing if you want to track your expenses without making the conversions, but in return you’ll be charged a DCC fee.

Merchants charge a fee for dynamic currency conversion to cover the cost of converting their customer’s foreign currency into their local currency.

How does dynamic currency conversion work?

There are many different currency conversion fees, most of which are charged directly by the credit card company such as Visa or MasterCard. Dynamic currency conversion fees are charged by the merchant, usually via a third-party payment processor or gateway.

How does dynamic currency conversion work at the point of sale? Imagine that a customer wants to make a purchase using a card issued in Japan. They come to your US-based store and are given the option of paying in Japanese Yen (JPY) or US dollars (USD) at checkout. If the customer chooses to pay in their local currency, JPY, the currency is automatically converted into USD in real-time. Your business is paid in USD, while the customer pays in JPY. A corresponding fee is then charged which makes their purchase more expensive than if they had chosen to pay in USD. 

Advantages and disadvantages of dynamic currency conversion

There are some advantages to dynamic currency conversion for both merchant and customer. For example, choosing this option at checkout locks in the exchange rate with full transparency. This makes it easier for the customer to compare prices. The merchant also benefits from knowing that they will receive the current market rate plus markup. By contrast, credit card currency exchange rates might fluctuate because they aren’t locked in until the transaction is processed later.

On the other hand, accepting DCC payments also holds some disadvantages. DCC vendors might not share the markup rate. Merchants might have to pay high fees depending on the payment processor you’re using. Customers also must shoulder an additional transaction fee, on top of whatever markup is associated with dynamic currency conversion.

While dynamic currency conversion is convenient, it’s usually a more expensive option for both merchant and customer.

How to avoid dynamic currency conversion

If you’re making a purchase from overseas suppliers, say no to DCC if it’s offered to you. The supplier might ask if you want to make a card payment in local currency or USD, in which case you should choose the local currency. It’s also important to shop around to find payment solutions with lower foreign transaction fees.

Accepting international card payments is costly, with or without dynamic currency conversion fees. By contrast, GoCardless allows your business to receive payment using the customer’s local bank debit option. Customers benefit from using their local currency, as with DCC payments, but without the hefty markup and all at real exchange rates. Collect international payments from over 30 countries worldwide with GoCardless. Enjoy real-time currency conversion and no hidden fees.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.