Global giant First Data Corporation announced this week that it`s partnered with AJB Software Design, Inc. to offer a new way for merchants to charge a Dynamic Currency Conversion (DCC) fee to consumers. AJB creates payment solution programs and First Data processes payments so the two of them will be able to provide merchants a new way to implement the DDC fee transaction when making sales to tourists or foreign travelers making purchases using a foreign credit card.
Many people, even frequent travelers, may be unaware of the dynamic currency conversion fee or may confuse it with a foreign transaction fee. DCC fee is a currency conversion convenience fee that is charged by merchants at the point of sale (POS). Here is how it`s supposed to work: when a credit card is scanned by a POS system, it picks up whether the card is foreign, and if it is, the merchant is prompted to ask whether the customer would like to pay for the purchase in their homeland currency. If the customer wants the charge represented in familiar currency, the merchant`s POS will convert the price to that country currency, right then and there, and will charge a DCC conversion fee, usually around 2.5 percent.
Foreign Fees and Dynamic Fees
A foreign transaction fee is charged to consumers by their credit card companies when they make a purchase in foreign currency and the credit card company converts the currency. The foreign transaction fee is usually between two and three percent, although some banks, like Capital One and Discover, charge no foreign transaction fee on any of their credit cards, making them a good choice for globe-trotters. When your card-issuing bank converts your purchase into US dollars, they usually give the best exchange rate, so even if they charge a foreign transaction fee it’s often the best deal.
The catch with opting to pay in home currency and paying the DCC fee rather than the foreign transaction fee is that unlike card issuing banks, merchants usually don`t give the best exchange rate. Also, if your card issuer charges less than a 2.5 percent foreign transaction fee, you`ll pay more when opting for a Dynamic Currency Conversion. Since the DCC transaction is being billed in home currency, no foreign transaction fee will be levied by the card issuing bank, so it`s a choice between the DCC and the foreign fee.
Here`s what a receipt using DCC looks like:
(click to view larger)
What Price Convenience?
The Dynamic Currency Conversion is often decried by fee watchdogs as an unnecessary charge that`s sneakily passed off on foreign consumers who may already be befuddled by making transactions in a different currency than they are used to. Opponents of the fee say that although it`s supposed to be optional, merchants often do not disclose it, slapping them with a higher exchange rate than they would have been given by their credit card issuer.
Proponents of DCC technology say that it provides a convenience to tourists and also saves them from unknown fees. With DCC, customers are supposed to be provided full disclosure and given the option of being charged in either currency. All charges for a DCC transaction are printed out on the receipt, along with the exchange rate. This takes the guesswork out of wondering what the exact exchange rate will be when the card issuer processes the charge, and what the foreign exchange rate will be, for card holders who don’t know. They say this protects consumers from being blindsided by fees and keeps transactions transparent.
Potential Revenue Stream
David Fish, senior analyst for the Mercator Advisory Group, says that “DCC provides an important value-added service and ancillary revenue stream for merchant service providers with strong presence in tourist and corporate travel destinations. It can also provide an attractive revenue stream for merchants that serve tourists, potentially offsetting a portion of their overall expense of managing the point of sale and the payment process.”
The US Department of Commerce estimates that there will be more than 81 million visitors to the United States between 2010 and 2016, resulting in millions of transactions which could potentially provide plenty of revenue for merchants who use the new DCC system developed by First Data and AJB Software.