Just say no to dynamic currency conversion

I went on a two-week dream trip to Morocco a few years ago. Although it had been a while since I traveled internationally, I thought I was ready.

I informed my credit card companies that I’d be traveling. I only brought credit and debit cards that didn’t charge foreign transaction fees. And I picked up euros before leaving to convert to Moroccan dirhams — since its currency is difficlut to get in the U.S. — when I landed.

But I forgot one big thing: dynamic currency conversion (DCC). It cost me nearly $40 when all was said and done. DCC allows cardholders to handle transactions in their home currency, whether it’s taking cash out of an ATM or using a credit card at a point-of-sale (POS) terminal or at shops, restaurants, hotels and more – but for a fee.

Those in favor of DCC like how one can instantly know how much they’ve spent on every transaction instead of waiting to see what the final tab is. “The consumer is always paying more just to see the price in their own currency,” according to a fact sheet by BECU: The European Consumer Organization, a network of organizations that represent consumer interests across the European Union.

Ease versus cost (with a cost that might not be clear)

Proponents of DCC point out that people are more comfortable using their home currency because it eliminates the uncertainty regarding the currency conversion rate, according to a paper written by senior associate Jakub Stastny of Prague, Czech Republic law firm Kinstellar. “This may be especially convenient when making payments in lesser-known currencies, where the cardholder does not know the market exchange rate,” Stastny says.

Several studies indicate that paying in the cardholder’s home currency via DCC is generally the more expensive option, says Stastny. “DCC providers add a significant margin to the currency exchange rate, making the rates given by DCC providers far less appealing than the market rates at the time of the transaction.”

While the average markup across Europe is around 5 percent, a study also found an extreme case of 13.7 percent cost differential from paying in euros rather than in Czech koruna at an ATM in the Czech Republic, Stastny noted. “The added value of DCC can hardly justify such high margins.”

This means cardholders may choose DCC service without understanding its exchange rate markups. “The DCC option is usually offered on the ATM screen on the right (as a logical next step), while rejecting the DCC service is displayed on the left side of the screen, which some cardholders may interpret as a step back,” Stastny wrote.

Consumers are not always informed about dynamic currency conversion

What makes DCC even worse is that, because of the way it’s structured, it’s almost impossible for consumers to make an informed decision. “The consumer needs to know the exchange rate of his bank, the exchange rate of the merchant’s bank, the conversion fees, if any, and then be able to calculate in a fraction of a second what the best option is, all while being in a queue with people waiting behind them,” according to the BECU fact sheet.

Some cardholders may not even be able to make a choice. “For instance, when a customer pays a bill in a restaurant, it may happen that restaurant staff not only inserts the total amount to be paid but also automatically confirms that the amount will be charged in the customer’s home currency,” wrote Stastny. “The currency conversion is thus made by the DCC provider, using the DCC provider’s exchange rate, without the customer’s knowledge.”

Consumers take a hit to their pocketbooks as a result. “British consumers traveling abroad are being charged £500 million every year in dynamic currency conversion fees.”

The bottom line

Having learned my lesson in Morocco, I was ready for my week-long group trip to Portugal in November 2024. When I received the check for a lovely outdoor lunch in Porto, the waiter asked if I wanted to pay with U.S. dollars, I said no. I was also able to navigate local ATMs with ease, turning down the option to use the dollar as my currency when withdrawing euros.

BECU’s advice is simple: Always pay in the local currency. The organization has even called for a complete ban on DCCs. “There is very little added value to a DCC service. The evidence shows that the price paid for knowing the transaction amount in one’s own currency is extortionate.”

However, the European Commission nixed banning DCC outright in 2018. Instead, it increased the transparency of DCCs so payment service providers have to disclose the full cost charged to consumers.

Prohibiting an activity that could prove useful for consumers under certain circumstances would be disproportionate, the EC ruled. “Instead, the commission’s proposal will make it possible for consumers to compare offers and make an informed decision,” it said in a press release.

The EC believes increased DCC transparency will boost competition among payment service providers. “If the fees for dynamic currency conversion become more competitive, banks may also provide better rates for their currency conversion services. This might eventually lower costs for consumers.”