Dynamic currency conversion (DCC) is a practice that allows merchants to offer customers the option to pay in their home currency rather than the local currency. While this may seem convenient, it can actually be a rip-off for consumers.

What is DCC?

When you use DCC, the merchant or ATM converts the amount of your transaction into your home currency at a rate that is typically higher than the mid-market exchange rate. This means that you are essentially paying a premium for the convenience of seeing the price in familiar terms.

In addition, DCC transactions often incur additional fees, which can further increase the overall cost of your purchase. These fees are typically charged by the merchant or ATM, and they are not disclosed to you upfront.

Why DCC is a Bad Deal for Consumers

The reason why DCC is a bad deal for consumers is that it is often a significant rip-off. For example, one study found that the average DCC markup was 4.5%. This means that if you buy something that costs 100 euros, you could end up paying an extra 4.5 euros simply because you chose to pay in US dollars.

In addition, DCC transactions often do not avoid the foreign exchange transaction fees imposed on the consumer by the credit card issuer. Even though you are now paying in the currency of the card, it is still a foreign transaction and still incurs the fee.

Mastercard's Ban on DCC

In a welcome move, Mastercard has announced that it will be banning DCC for prepaid cardholders. This means that if you are using a prepaid card with Mastercard, you will not be offered the option to pay in your home currency when you make a purchase abroad.

This is a great step forward for consumer protection, but it is important to note that it only applies to prepaid cardholders. The vast majority of travelers, who use credit, debit, or single-currency prepaid cards, will still be able to be offered DCC.

How to Avoid DCC

The best way to avoid DCC is to always decline the option when it is offered to you. This is typically done by pressing the "No" button when the merchant or ATM asks you if you want to "view transaction in your home currency."

If you accidentally agree to DCC, you may be able to cancel the transaction and pay in the local currency. However, this is not always possible, so it is best to avoid DCC altogether.

Conclusion

Dynamic currency conversion is a scam that can cost you more money in the long run. Always decline DCC when it is offered to you, and be aware of the exceptions to the rule. By following these tips, you can save money and protect yourself from this unfair practice.