Dynamic Currency Conversion Example

Ha! I bought the same tickets just a few days ago, took a screenshot of the offered rate to check against my card, and promptly forgot about it. You just did it for me!

The dynamic conversation offers almost feel like an insult to my intelligence.

4% isn't as bad a deal as the approximately 7% I've encountered on several occasions. (I don't always do the math.)

The idea behind dynamic currency conversion is pretty simple. Charges are too much but we have to check out the other options.

I purchased all my Airline tickets directly from the European website and paid in Euros. One flight was $63 converted from Euros vs $76 if paid in Dollars

Early on in the DCC days, I did the same, in fact one of the early offers, I accepted the DCC just to see how it went. At that time, my credit union was meticulous about disclosing fees (This was post 2008 bank issues) and rather than just saying an ATM withdrawal cost you X amount (which included the current exchange rate plus the ~1% network fees everybody pays). they actually broke out the amount of the actual conversion, plus the transaction fee (a small flat or tiered fee for visa to process) and the Foreign Currency Conversion Fee (a % of transaction) that Visa charged. You rarely, if ever, see this detail.

One of the claims of DCC is you know exactly what the transaction will cost you...True, they tell you.
Another claim is that it will save you conversion fees with your card...this, also happens to be true...the one DCC transaction I did had the transaction fee, but no currency conversion fee, Visa saw the transaction in Dollars.

Of course the offer they made (in the range of a 5% cost as I recall, it was a Spanish bank) was way more than the about 0.3% or so that Visa would do it for., but it was interesting.

In 2000, I made my first trip back to Europe (Germany) in more than 10 years. As I had before, I brought Travelers Cheques, I found it hard to find banks that would exchange them. Then, one day, I went through Stuttgart, and in the Hbf there I saw an ATM. I wondered if it would work the same way as an ATM worked in the US. I put in my card and got German Mark (this was before the euro). When I got home, I compared the Mark I got to the dollars they charged me, and it was exactly the same as the international exchange rate on that day. I figured that was because they were exchanging about the same amount of dollars and European currency across the Atlantic and it just averaged out. Well, the banks quickly figured out that this was a way to extract money from travelers, and the no longer exchange currency straight across.

Apparently, leter, when banks were giving themselves a profit on currency conversion, but not telling anyone, there was a suit over this against Wells Fargo, and things changed again, to make the transactions more transparent. At the time, the "Network" (Visa, Mastercard, Plus, et all) was charging 1% to exchange currency and service the account (give euro to the ATM's bank and charge your bank in dollars).

Then Wells Fargo, who deals in foreign currency, decided they could pay the network in euro, etc, and owe the network nothing for servicing the account. The Network decided they wouldn't service the account for free, and divided the 1% into two parts, currency conversion, about ½% and a transborder transaction fee, also about ½% (it's actually about 60/40, but I don't remember which way. I think that's the way it is today. So, when you credit union or small bank charges you 1% to use an ATM or a CC in Europe, they are just paying the Network 1% and passing it on to you (nice guys) but when Chase or US Bank charges you 3%, they are paying the Network 1% and keeping 2% for themselves (not nice guys). When you agree to DCC, the network does not collect their ~½% for currency conversion, but they still take the other ~½% for servicing the account. Add that to the approxiamately 2-2½% that the German bank takes for Dynamic Currency Conversion, and you lose vs 1% from a credit union. And, I think that a bank like chase still charges you 3% for the foreign transaction.