If you are a frequent traveller, technology has made things easier for you. Now you need not carry a lot of foreign currency as your credit card is doing the job of currency exchanger very efficiently.
However, technology can have loop holes which could burn a hole in your pocket. One such loop hole of international credit card usage is the Dynamic Currency Conversion or the Cardholder Preferred Currency service.
Dynamic Currency Conversion (DCC) also designated as Cardholder Preferred Currency (CPC) is a service provided by merchants (not network service providers like Visa or MasterCard) in some countries where you go on vacation or a business trip. If you agree to use the DCC service, the merchant will convert the transaction amount of purchase at the point of sale from the currency in which the price (i.e., foreign local currency) is displayed into your domestic currency using an exchange rate that typically includes a service charge. The currency exchange rate offered is over and above the wholesale exchange rate being offered by Visa/MasterCard normally.
The Inside Story
If a customer chooses DCC option he is approximately overcharged by 5-7 per cent. It’s a case of nice profit margin for the banks just by making the customer choose DCC option. Some merchants may even use DCC option without asking you.
How can you benefit if you do not use the DCC? If you don’t use the DCC option the conversion rate applied is the wholesale currency conversion rate. So you save approximately 3 per cent in the currency conversion and you are also saved from paying the DCC service charge of 2.5-3.5 per cent. Visa/MasterCard too charges a fee up to 2 per cent for currency conversion but these charges are comparatively less than charges applied for DCC.
Tackling the DCC
If a merchant offers this service, you should preferably decline it, since the rates of conversion used are mostly higher than any fee you are liable to pay for having the billing done in the foreign currency. Examples of an overcharge up to 6.5-7 per cent are actually seen in the real world.