Dynamic Currency Conversion and Other Overseas Credit Card Usage Gibberish

by David@MoneyNing.com · 9 comments

Today’s post comes from Odysseas Papadimitriou, who found that even him, a credit card industry expert, were caught off guard by a special fee called Dynamic Currency Conversion while he was traveling overseas. Learn what it is by reading below, and also an additional “must-know” tip when you travel in Europe these days.

I’ve been working in the credit card industry for almost a decade, and at this point I consider myself to be something of a subject matter expert. However, on a recent trip to London, I was humbled to discover some gaps in my basic knowledge of how to best use credit cards when traveling abroad.

During my stay in London, I used my credit card to make most of my purchases. Credit cards offer some of the best exchange rates and the convenience of not having to carry around large amounts of cash. I was also sure to use a credit card with no foreign transaction fee, so I knew I was getting a good deal. This was all well and good, until I came back home and received my credit card bill.

It was almost 10 percent more than the charges I thought I had made on my trip. When I examined my bill and receipts side by side, I discovered that I had been charged an extra fee for currency conversion on many of my purchases. My advice to you: never accept a merchant’s offer to convert your credit card transactions from the local currency into U.S. dollars. I accepted this offer many times while I was in London because an amount in dollars means more to me than the same amount in British pounds. What I didn’t know was that this is a consumer trap called Dynamic Currency Conversion.

Merchants use Dynamic Currency Conversion to charge travelers exorbitant conversion rates as high as 7 additional percent and pocket the difference as a fee. It gets by you because, if you’re like me, you’re not doing the math on the spot to see if the currency conversion is in line with the official exchange rate. If a merchant offers to make this conversion for you, save yourself some money and respectfully decline.

A secondary lesson that came from this trip, which I also learned the hard way, is that if you want to use your credit card in Europe, you need to carry your passport with you at all times. Most countries in Western Europe have switched to chip-and-pin technology for their credit cards. These cards are much more sophisticated than the magnetic stripe cards we have in the U.S. and offer more security.

Therefore, if you want to use the magnetic stripe cards, merchants expect that you have your passport with you as an added measure of security. This came as a surprise to me, given that in the United States they don’t even bother to verify your signature. Merchants will and have to accept your U.S. credit card, but if you don’t have your passport to identify yourself, you can pretty much forget about making the purchase.

Don’t get me wrong though. I believe that credit cards are one of the most effective ways to make purchases while traveling abroad. They offer favorable exchange rates, the security of not carrying around large amounts of cash, and the convenience of always having enough money and not being stuck with left over foreign currency.

In order to make the most out of your credit card though, my advice is to do the following: carry your passport with you at all times, decline any merchant’s currency conversion offer, and compare credit card applications for the best no foreign transaction fee credit card before you leave. If you do all of these things, there is no better way to make purchases overseas.

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{ read the comments below or add one }

  • Christophe Lassuyt says:

    2 apps could complement this interesting article: https://neomy.io/ and https://revolut.com/. The first one is about exchange rates alerts and the second one allows international payments in the good currency without fees.

  • joe costa says:

    Dear Sir,this exchange rate tactic is something done so many places abroad.So i do not use a credit/ debit when abroad.its easy to get ripped off if not very careful.My dad taught me long ago to use cash for all purchases,but never convert us dollars at the airport,exchange rates vary somewhat,so dad would try to locate a bank which offers a more “honest ” exchange.also,if travelling stateside,turn cash into travellers checks,theyre honored everywhere,and can be replaced if lost or stolen.

  • Vincent Brannigan says:

    I have taught consumer protection and technology law for 35 years and this is one of the nasty little scams that is by-product of a rapacious industry and impotent regulators.

  • Anonymous says:

    This is a big scam and it is very annoying. So far, I have only experienced it when ordering things from Amazon: the sum always ends up in my currency (SEK) instead of the original JPY, EUR, GBP or USD (I haven’t tried Canadian or Chinese Amazon), but I have stopped using my card in foreign shops not offering the PIN code option. If PIN codes are accepted, the total amount including currency code are indicated on the screen when accepting the purchase, so no problem there — I can always press the “cancel” button if the wrong currency code is displayed. When I first got my VISA card, I stopped carrying around lots of cash, but now I’m starting to carrying lots of cash again, although only when I go abroad.

  • FUN888 says:

    Just returned from a trip from Hong Kong and China

    In HK, all the charges are in HK $, thus avoiding the 3% Dynamic exchange fee. The only one that charge Dynamic exchange fee is Bank of China subsidiary that process Visa CC transactions.

    In China, things gets really bad. Each time I ask to be charged in RMB, it came out to be in US$. After protest, it still come up with a statement saying that I was offer to reject the US$ option (which I did not). The bank say all I have to do is to cross out the option line and all the fine prints and I will be fine and will be in RMB. When I came home and check my statements, it all had the 3% Dynamic Exchange rated added onto my Schwab Credit card.

    It is a big scam by Bank of China.. Be careful when you use credit card in China.

    All my charges including Shangri-la are in US $ even I crossed out all the options in the US$ option, also wrote big sign as RMB. Is you want, I can eMail you the credit card slips.

  • basicmoneytips says:

    I work in the credit card industry and we have many clients in Europe so this is really all old news.

    DCC has been around a few years now. You are lucky if the merchant asks you, sometimes they will look at your passport and go ahead and make the conversion. While the exchange rate for credit cards is generally better than converting hard cash, there is still a better way. Use your ATM card to get cash at ATMs, if your bank is like mine and waives transaction fees. You get the exchange rate offered by VISA or MasterCard (which is favorable) and also no fee. If your bank does not waive fees, open a new account before you go and get a VISA or MC debit card at a bank that does – there are plenty out there.

    As for chip cards and your passport, you are correct. If a merchant has a terminal that accepts chip cards, and you use your non-chip card at his device and it is fraudulent, then he is responsible due to a concept known as liability shift (he accepted a mag stripe card at a chip device), so he better verify your identity. He does this because he wants the sale and is mitigating his risk.

    Chip cards are coming to South America and Latin America as we speak, so be sure and carry your passport there as well.

  • marilyn says:

    The checking ID only has happened to me in London. Based on the mutual experiences of myself and my boyfriend while we in France, Spain, Sweden, and Finland we never got IDed at all. I imagine other areas of Europe probably don’t care too much either.

  • Double My Net Worth says:

    This is an excellent example of what consumer education is all about, the different ways you can watch your transactions and ponder on the additional fees that might take you to the cleaners.

    Especially when traveling on a budget. I have never been asked by a merchant regarding the currency conversion but now that I know, I know more than before. Can’t really blame them, not if they all want to earn a profit for their shareholders. I wonder what the percentage of revenue this fee brings.

    Thanks for this, I enjoyed it.

  • MoneyNing says:

    I actually got dinged for this before too. I was overseas attending my friends wedding and I didn’t realize that I would be charged more if the amount was in US currency.

    It was for a wallet that I bought, so it wasn’t a huge difference but I didn’t even know until I read this post and went back to check. Lesson learned.

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