So I know from reading this forum that whenever you use your credit card or debit card, make sue that you deny the conversion to USD and to accept the local currency.
My question is this: if we're always to accept the local currency because it's favourable to the consumer, why is there ever an option to convert to USD? Or, another way to frame this is under what few circumstances would one want to pick the convert to USD rather than accept local currency option?
Curious mind wants to know.
Contrary to what the payment platform would have you believe, the proffered currency conversion is not for the benefit of the consumer. It's for the benefit of the payment platform. They get to set the conversion rate to their benefit. Not the consumer's.
Explained here on the RS site in Travel Tips:
Dynamic Currency Conversion: Just Say No
Some European merchants and hoteliers — capitalizing on the fact that some Americans are intimidated by unusual currencies — cheerfully charge you for converting your purchase price into dollars. If it's offered, refuse this "service" (called "dynamic currency conversion," or DCC). You'll pay extra for the expensive convenience of seeing your charge in dollars. The price is usually based on a lousy exchange rate set by the merchant's bank — and even though you're paying in "dollars," your credit-card issuer may still levy its standard foreign-transaction fee.
Circumstances: never. The DCC is a moneymaker for the payment machine manufacturer and the store or restaurant owner. The 10% markup goes mainly to the company that manufacturers and sells/rents out the payment terminals. The business owner gets a little cut. In Switzerland, the people working in the shops and restaurants would tell us to choose Swiss francs in order to save money and not the other currency offered.
@Bets, how kind of the people in Switzerland to advice their customers to choose the local currency!
It counts as "consumer choice" in various jurisdictions as otherwise the card platform would have an exchange monopoly. Although it never seems to be in the favour of the consumer to take it.
Only thing I can figure is some people are more comfortable seeing what they spent in their own currency vs foreign currency. But of course it is a very bad deal...and some people must have no idea that they are getting screwed.
Never understood it myself.
Never understood it myself.
In case you haven't heard, banks are in business to make money, anyway they can.
JoJo rabbit has it right. Some people want to know how much they are spending in "real money" and may or may not know they are paying fro the privilege. I have explained DCC to some people standing in front of a machine, and they will still choose USD because it seems to make sense to them. Oh, and some people cant be bothered to read all those words, especially if they're written intentionally confusingly.
And unlike the Swiss, many service people will recommend DCC either because they're trained to do so, or dont understand it themselves. Sometimes they push the buttons themselves when they think you're confused. I understand foreigners who come to the US are treated to the same experience in the other direction. And I doubt many US cashiers would know anything about it.
It’s just a way to try and make money that’s all.
In case you haven't heard, banks are in business to make money, anyway they can.
You missed my point. I have never understood why any consumer would choose DCC. My comments above had nothing to do with why banks and CC companies would rip off their customers.
Caveat emptor still applies...
many service people will recommend DCC either because they're trained to do so, or dont understand it themselves.
I would probably agree that many service providers do not fully understand DCC (In their personal life, unless they travel to a different currency area, they never see it with their card), But as for any employee ever making a comment about DCC, it is to recommend to decline it, even so far as having them reach over the terminal to decline for me (at a couple hotels). I do not believe I ever have had an employee recommend I choose to pay in Dollars.
As for when does DCC become a better option, or what is the benefit? If whatever card or network used, does the conversion at rates closer to what an exchange bureau does, then knowing and seeing the rate might have benefit. As many terminals now direly warn: "The transaction will cost you XXX USD, if you decline, You will not know what the rate will be!" This is true, you don't know, but if using one of the major US/European card networks (MC/Maestro, Visa) you can be assured that it will be within 1-2% of the interbank rate. Now it is certainly possible if you are from another country (other than US, Canada, and Europe) that some card networks do not have the pull to get as good a rate. In many transactions, I have never seen a case where the offered rate was better than the then "unknown" rate my US based card has.
I do not believe I ever have had an employee recommend I choose to pay in Dollars.
Desk clerk at Swiss hotel hands me the credit card slip to sign for a rather substantial bill in USD.
"Wait a minute! This is Switzerland. Why are you handing me a bill to sign in USD?"
"Oh, you're an American and the terminal gave me the option of doing the transaction in USD, so I assumed that is what you prefer."
"Wrong. Redo it in CHF please."
All, thank you for the plethora of notes, sharing of experiences and knowledge! This is great!
Yesterday, my husband and I separately purchased train tickets to/from Lisbon to Porto. We're still States-side. We were doing it at exactly the same time. I was going to purchase two tickets on his behalf (i.e., under the same CP account but I was having trouble for whatever reason so I asked him to create his own account and we purchased together at the same time). I used my Apple Card (a mastercard) and he used his Wells Fargo (I think it's a master, but I forget). We both selected purchase in Euros (rather than USD) and interesting the amount came to be just a little different. Not a big deal, but I thought it was interesting. I ended up being charged something like $55.50 and his was charged $54.90. For some reason, I thought it would be exactly the same, but I guess it's because different banks use slightly different conversion rates?
A few of you pointed out this kind of conversion at terminals is called DCC so I looked that up on the internet and American Express has some really interesting things to say about DCC. They do agree that buying in local currency makes sense most of the time (and probably for travel forum folks it's going to make sense 100% of the time). But they do list a few scenarios where DCC might be more agreeable. Here's the link and I'll paste some choice quotes below. https://www.americanexpress.com/en-us/credit-cards/credit-intel/should-you-pay-in-local-or-home-currency-when-traveling/#:~:text=Depending%20on%20the%20credit%20card,nearly%20always%20save%20you%20money.
In practical terms, you will almost always pay more to use DCCs, and in some cases you might pay as much as double the basic currency exchange fee for a foreign transaction. Because the fee is hidden within the overall price, it’s often unclear what exchange rate is being used for the conversion. [...]
Why would anyone choose to use dynamic currency conversion? Simply put, it is a value-added service. The ability to view transactions in your country’s currency is typically easier to understand. What’s more, you view the converted price at the exact moment you make the purchase.
DCCs also deliver locked-in prices. As a result, it might make sense in situations where currency fluctuations are extreme or when complete price transparency is required, such as for business expense reporting purposes.
However, most of the time there are other less costly ways to negotiate foreign currency conversions when traveling. One of the simplest methods is to use a currency converter app on your smartphone – or look up the exchange rate – and determine the real cost using the calculator on your phone. This also makes it possible to view any potential added fees that have been inserted into a transaction, especially if it’s a DCC transaction.
Keep in mind that the best credit cards for international travel don’t impose foreign transaction fees. If you use one of these cards and avoid DCCs by selecting the local currency payment option, you will usually come out ahead.
So if I were to translate what AmEx says (and I can be totally wrong in this) might be this:
- DCC results in you knowing exactly the price you will be paying in your own currency (e.g., USD), but in order to display the exact amount, it first has to lock in the conversion rate, and in doing so it likely won't choose the most favourable conversion rate because the company(ies) are using that opportunity to essentially charge you a fee to show you USD amounts.
I think you've got it!
In Germany and Austria this trip I encountered this dubious choice several times as I was handed that hand machine where I am supposed to press dollars or Euro. I don't what the clerk was expecting from me...press the dollar amount? Of course not.
To answer your questions above: it looks tempting, there are Americans who fall for this because it looks convenient and is tempting.
In Germany I try to lower the chances of getting this choice by talking to the clerk only in German, basically to show him I'm not interested in any dollar amount, only paying that owed in Euro. Bottom line: you never press anything in dollars.
That bit about DCC perhaps costing you up to double the regular conversion cost is a crock. The machines at Istanbul Airport (IST) charge 10% over the official exchange rate, and I've seen 8% elsewhere here--I think on the otherwise-good, no-fee Ziraat Bank ATMs. In other countries I've seen fees up to at least 7% disclosed.
DCC is getting more pervasive every year, as are fee-charging ATMs. And sometimes you run into an ATM that allows you to decline DCC or pay no fee, bur not both.
On the plus side, it has been years since a hotel/restaurant/shop employee has selected dollars without asking me or after I have specified the local currency. The tap terminals seem to have helped. And Poland's terminals now display in English if you use a US card, which wasn't the case in 2018.
The clerk will hand it to you to select out of politeness. They’re not trying to con you. Most places that get a lot or tourists will usually just say ‘Euros?’ and make the selection for you, but you will always be asked.
In Germany I try to lower the chances of getting this choice by talking to the clerk only in German, basically to show him I'm not interested in any dollar amount, only paying that owed in Euro.
Not sure if this would work, unless the clerk is underhandedly making the choice for you. You insert the card, the terminal knows what your home currency is by reading the card, and calculates the DCC offer. The terminal only cares about the card, not what language you speak.
On my next trip, I'd be interested in asking hotel clerks and restaurant servers what they normally see happen. I wouldn't be surprised if they said that "most" Americans choose USD, (not the enlightened folks here, mind you). Knowing that most travelers they see are other Europeans, it's probably not something they purposely have a stake in doing other than to be helpful.
In the past (pre-tap) I ran into some employees who either didn't ask what I wanted or ignored my clear statement that I wanted to use euros (Spain, multiple times) or forints (Hungary). Then when I objected, they claimed not to know how to cancel a charge. I waited them out, refusing to leave the establishment until the charge was reversed and rerun in local currency.
I don't buy that those employees didn't care what I chose, or only wanted to help me. It's clear that at one point some managers were instructing staff to push customers into accepting DCC. The tap terminals make that sort of thing a lot less likely now, though there was the convenience-store guy in Warsaw who reached around the terminal to choose dollars for me when I was slow to interpret a screen that was totally in Polish (in 2018). That was infuriating, because there were no other customers in the store.
There are still staffers who will press the button for you if you're not quick enough. Here in Turkey there are a lot of words on those terminal screens, because they explain DCC and tell you what the conversion fee is rather than just displaying something like "1 = TL, 2 = US." With luck, it won't be the US $ button the employee presses, but you really need to pay attention.
I would say that some hoteliers knowing that I am from here , obviously, my passport tells him that, offer the amount to be charged in dollars because they believe that would be easy for me (I am not interested in what would be easier for me). I automatically say the charge is to be made in Euro. On the surface, it sounds tempting.
I don't think I have had the staff person press the dollar option for me thinking that was what I wanted...lucky. Almost every where in hotels the terminal was handed to me so that I could choose between dollar and Euro.
If I am doing the transaction in the local language, when presented with the terminal, the staff member will know I won't be choosing dollars. If one pays cash to the hotel, no need. In Paris this time I handed over at check-in 300 Euro cash to cover the first 3 of the six nights of the stay.
It really isn’t to do with what language you speak. If you had a Euro bank account there would be no option to pay in dollars even if you spoke purely in English! It’s just reading your card and it knows it’s a dollar account and that’s why you’re given the option.
Places that are used to seeing foreign cards will usually know you want to select Euro. If you’re somewhere that doesn’t get many tourists then they’ll be more surprised to see the screen and may not know what you want to choose.
