Warning: VISA/MC overseas using DCC
Jul 31, 2005 | 8:32 pm
#1
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Warning: VISA/MC overseas using DCC
This is a fascinating article from today's Washington Post.
The full article can be found here: http://www.washingtonpost.com/wp-dyn...072900927.html
Charge It . . . but Check the Math
By Gayle Keck and R. Paul Herman
Special to The Washington Post
Sunday, July 31, 2005; Page P01
Faith and begorrah! Was it the work of currency conversion leprechauns? On a recent trip to Ireland, we were astonished to see our credit card purchases ringing up in U.S. dollars at most tourist-related merchants, restaurants and hotels. Clerks and wait staff told us their machines had been spitting them out this way "since last year," explaining that their credit card transactions were automatically converted to the currency of the card issuer's country of origin.
On the surface, it sounds swell: You see instantly what you're paying in your home currency. So what's the big deal?
It could be a bad deal. If the transaction is run in dollars, cardholders can get socked with a dismal exchange rate, compared with charges that are processed in the local currency (euros, for example) and converted at or near the interbank clearing rate by Visa or MasterCard.
Example: When we laid down a credit card at an Irish hotel, the 617.22 euro bill was "dynamically" converted to dollars by the hotel's credit card processing terminal, which printed out a ticket of $832.88, at the exchange rate of 1.3494 dollars to the euro. We requested that the charge be voided and rerun in the local currency, deciding to take our chances on the exchange rate we'd get through Visa. The resulting charge that appeared on our credit card statement (processed the same day) was $801.73 -- an equivalent exchange rate of 1.298937, for a difference of $31.15, or nearly 4 percent.
This burgeoning phenomenon is known as "dynamic currency conversion," or DCC. It turns out that some companies with a large volume of tourist business, such as Avis and Europcar, started the practice in select countries several years ago...
By Gayle Keck and R. Paul Herman
Special to The Washington Post
Sunday, July 31, 2005; Page P01
Faith and begorrah! Was it the work of currency conversion leprechauns? On a recent trip to Ireland, we were astonished to see our credit card purchases ringing up in U.S. dollars at most tourist-related merchants, restaurants and hotels. Clerks and wait staff told us their machines had been spitting them out this way "since last year," explaining that their credit card transactions were automatically converted to the currency of the card issuer's country of origin.
On the surface, it sounds swell: You see instantly what you're paying in your home currency. So what's the big deal?
It could be a bad deal. If the transaction is run in dollars, cardholders can get socked with a dismal exchange rate, compared with charges that are processed in the local currency (euros, for example) and converted at or near the interbank clearing rate by Visa or MasterCard.
Example: When we laid down a credit card at an Irish hotel, the 617.22 euro bill was "dynamically" converted to dollars by the hotel's credit card processing terminal, which printed out a ticket of $832.88, at the exchange rate of 1.3494 dollars to the euro. We requested that the charge be voided and rerun in the local currency, deciding to take our chances on the exchange rate we'd get through Visa. The resulting charge that appeared on our credit card statement (processed the same day) was $801.73 -- an equivalent exchange rate of 1.298937, for a difference of $31.15, or nearly 4 percent.
This burgeoning phenomenon is known as "dynamic currency conversion," or DCC. It turns out that some companies with a large volume of tourist business, such as Avis and Europcar, started the practice in select countries several years ago...
... Hefty Penalties
Whether you get socked with these fees -- and more -- all depends on the bank that issues your credit card. Some issuing banks, such as MBNA, are charging fees on any foreign transaction, regardless of whether you pay in dollars or local currency. According to MBNA spokesman Jim Donahue, the company levies a flat 3 percent fee on every foreign transaction; in the case of a charge made in foreign currency, MBNA absorbs Visa's 1 percent currency conversion fee.
So let's say you wander into a European shop that uses Planet Payment's DCC system and buy an irresistible trinket with your MBNA Visa card. Unless you request that the charge be processed in euros, you'll likely pay an extra 3 percent for the dynamic currency conversion. Then, MBNA will tack on another 3 percent for itself. That's a total of 6 percent on top of the price of your bauble. Consider what you spend on an entire trip -- at hotels, restaurants and rental car companies -- and it could be a hefty penalty...
Whether you get socked with these fees -- and more -- all depends on the bank that issues your credit card. Some issuing banks, such as MBNA, are charging fees on any foreign transaction, regardless of whether you pay in dollars or local currency. According to MBNA spokesman Jim Donahue, the company levies a flat 3 percent fee on every foreign transaction; in the case of a charge made in foreign currency, MBNA absorbs Visa's 1 percent currency conversion fee.
So let's say you wander into a European shop that uses Planet Payment's DCC system and buy an irresistible trinket with your MBNA Visa card. Unless you request that the charge be processed in euros, you'll likely pay an extra 3 percent for the dynamic currency conversion. Then, MBNA will tack on another 3 percent for itself. That's a total of 6 percent on top of the price of your bauble. Consider what you spend on an entire trip -- at hotels, restaurants and rental car companies -- and it could be a hefty penalty...
Aug 1, 2005 | 9:51 am
#2
Join Date: Oct 2001
Location: San Francisco
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I noticed this at the left luggage at T2 at LHR in July. I looked at the automatic USD rate and it was terrible so asked them to void and charge me in legal tender (ie. Pounds) and mentioned the problem loudly enough I hope so the rest of the people in line made a similar request. The rate was $1.90 on a day when the paper was showing $1.80. Even with the 2-3% fee - I'm still 5c better off for each pound.
For my last trip to Italy I found that the best way to deal with all this was - pay in cash. My bank does not charge a fee for ATM withdrawals overseas, so we took out cash and avoided the 2-3% forex conversion charge. The ATM transactions also use that day's interbank rate 99% of the time (occasionally a bank will hold back for 2-3 days).
For my last trip to Italy I found that the best way to deal with all this was - pay in cash. My bank does not charge a fee for ATM withdrawals overseas, so we took out cash and avoided the 2-3% forex conversion charge. The ATM transactions also use that day's interbank rate 99% of the time (occasionally a bank will hold back for 2-3 days).
Aug 1, 2005 | 11:45 am
#3
Join Date: May 2003
Location: USA
Posts: 387
I used my Wells Fargo Credit Card for a purchase in Madrid and it came up in USD. I did a quick calculation and got a decent exchange rate Euro/USD, so I did accept it and sign. When I got my card satement, Wells Fargo did not charge a currency conversion fee or anything. I paid the $185USD stated in the voucher!!
Comparing this purchase of $185USD to other purchases I made in Madrid, I ended up paying more for the purchases I got in Euros (thanks to the exchange rate + currency conversion fee) than for the $185USD purchase...
Comparing this purchase of $185USD to other purchases I made in Madrid, I ended up paying more for the purchases I got in Euros (thanks to the exchange rate + currency conversion fee) than for the $185USD purchase...
Aug 3, 2005 | 12:54 pm
#4
Join Date: Apr 2005
Location: Los Angeles
Programs: UAL, AA, USAIR
Posts: 376
Wells Fargo debit card in Japan
Originally Posted by Rojo
I used my Wells Fargo Credit Card for a purchase in Madrid and it came up in USD. I did a quick calculation and got a decent exchange rate Euro/USD, so I did accept it and sign. When I got my card satement, Wells Fargo did not charge a currency conversion fee or anything. I paid the $185USD stated in the voucher!!
Comparing this purchase of $185USD to other purchases I made in Madrid, I ended up paying more for the purchases I got in Euros (thanks to the exchange rate + currency conversion fee) than for the $185USD purchase...
Comparing this purchase of $185USD to other purchases I made in Madrid, I ended up paying more for the purchases I got in Euros (thanks to the exchange rate + currency conversion fee) than for the $185USD purchase...
Aug 4, 2005 | 10:52 am
#5
Join Date: May 2003
Location: USA
Posts: 387
Originally Posted by phred
FWIW, I used my Wells debit card quite a few times while in Japan, and for purchases there was a minor exchange fee BUT for ATM withdrawals from the Post Office ATMs (the only ones that work), there was a $5 non-Wells ATM fee each time. So they get you one way or the other, guaranteed.
It is expensive to use your Wells Fargo Debit Card outside the US!! that is why I only use it in the US...
Aug 4, 2005 | 3:41 pm
#6
Join Date: Apr 2005
Location: Los Angeles
Programs: UAL, AA, USAIR
Posts: 376
And of course
Originally Posted by Rojo
On one of the last three statements from my WF Checking Account I got some amendments to the contract where they increased the International ATM fee to $5 USD and the currency conversion fee for WF Debit Cards.
It is expensive to use your Wells Fargo Debit Card outside the US!! that is why I only use it in the US...
It is expensive to use your Wells Fargo Debit Card outside the US!! that is why I only use it in the US...
Aug 5, 2005 | 10:36 am
#7
Join Date: Apr 2005
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To disclose up front I work in the credit card industry and have DCC clients.
DDC is where the credit card machine identifies your card as foreign and can offer you a choice of paying in the local currency (euro for example), or in your issuing/card currency (dollars).
Typically a bank/credit card issuer will add a comission of 1%-3% to your foreign currency purchase, which will be converted by the Visa or MasterCard network at a "interbank" rate. Typically this is very close to the rate you'll see on the TV or in the newspapers.
Some banks/issuers charge more than the 3%, since it's buried in the conversion rate they use, rather than as an extra charge.
Purchase of EUR100 = USD120 (at interbank rates - 1=1.20)
Visa charge the bank USD121.20 for the transaction (rate now 1=1.2120)
Bank charges you USD124.83 (at 3% more) rate now 1.2483
all the customer sees is the new conversion rate (1.2483) rather than 1.2120+fee.
(I am not talking about ATM or cash advance related fees as that is really messy).
DCC shop offers you (a) EUR100 or (b) USD123.79
Unless you know the exact exchange rate for the day plus you own bank's commission rates, you don't know if you're getting a good deal. On the other hand DCC does allow you to manage the transactions/balance better on your account.
A shrewd customer will have a good idea if the DCC rate is competitive, the same as if you went and bought foreign currency from a bureau de change.
You should be aware that you have the right to not accept the DCC process, and pay for the transaction in the local currency. The Visa and MasterCard rules state you have this choice.
My 2 euro cent... now offered as US$03.5!
Aidan
DDC is where the credit card machine identifies your card as foreign and can offer you a choice of paying in the local currency (euro for example), or in your issuing/card currency (dollars).
Typically a bank/credit card issuer will add a comission of 1%-3% to your foreign currency purchase, which will be converted by the Visa or MasterCard network at a "interbank" rate. Typically this is very close to the rate you'll see on the TV or in the newspapers.
Some banks/issuers charge more than the 3%, since it's buried in the conversion rate they use, rather than as an extra charge.
Purchase of EUR100 = USD120 (at interbank rates - 1=1.20)
Visa charge the bank USD121.20 for the transaction (rate now 1=1.2120)
Bank charges you USD124.83 (at 3% more) rate now 1.2483
all the customer sees is the new conversion rate (1.2483) rather than 1.2120+fee.
(I am not talking about ATM or cash advance related fees as that is really messy).
DCC shop offers you (a) EUR100 or (b) USD123.79
Unless you know the exact exchange rate for the day plus you own bank's commission rates, you don't know if you're getting a good deal. On the other hand DCC does allow you to manage the transactions/balance better on your account.
A shrewd customer will have a good idea if the DCC rate is competitive, the same as if you went and bought foreign currency from a bureau de change.
You should be aware that you have the right to not accept the DCC process, and pay for the transaction in the local currency. The Visa and MasterCard rules state you have this choice.
My 2 euro cent... now offered as US$03.5!
Aidan
Last edited by aidanc; Aug 5, 2005 at 10:37 am Reason: being clearer about ATM/cash