Dynamic currency conversion
Proponents of DCC argue that customers can better understand prices in their home currency, making it easier for business travelers to keep track of their expenses.
They also point out that the customer has full transparency inclusive of conversion fees, and can make an informed choice whether or not to use DCC.
However, the Federal Court of Australia found that Visa acted anti-competitively to protect its own revenues and was fined $A18 million.
[8] Prior to the card schemes (Visa and MasterCard) imposing rules relating to DCC, cardholder transactions were converted without the need to disclose that the transaction was being converted into a customer's home currency, in a process known as "back office DCC".
Visa and MasterCard now prohibit this practice and require the customer's consent for DCC, although many travelers have reported that this is not universally followed.
Customers have a strong chance of successfully disputing such transactions, especially in situations where they pay with a credit card and where 3-D Secure (such as Verified by Visa or SecureCode) is not involved.
At regular periods, usually monthly, the merchant would also be credited with the commission for DCC transactions.
The DCC provider, in this example the merchant itself, also disclosed that it is using the Reuters Wholesale Interbank exchange rate plus 2.95%.
Though this difference may seem a small amount for the customer, it can result in a big income stream for the DCC provider and merchant.
One should also realise that even without DCC the card issuer converts the transaction amount using its own exchange rates and margins, which in this example was 1.16522.
The merchant's point-of-sale terminal can only detect the card's country of issue and not the currency of the account that is to be selected.
For example, a DCC-enabled terminal in the Eurozone will offer DCC to a customer paying with a debit card issued in the United Kingdom on a Euro bank account.
Due to foreign exchange controls, China's banks issue large amount of such credit cards for international use.
In the worst situation, cardholders may have to experience 3 conversions to finish the transactions: There have reported cases of point-of-sale terminals allowing merchants to change the transaction amount and currency after the cardholder has entered their PIN and handed the terminal back to the merchant.
The customer gets the "real" exchange rate (no commission) unless the card issuer adds a charge for international transactions.
[14] The merchant would normally earn a margin on the transaction with no exchange rate risk, which is borne by the DCC operator.
Other advantages to customers, according to proponents, are: The main objection to DCC is the unfavorable exchange rates and fees being applied on the transaction,[15] resulting in a higher charge on their credit card, and that in many cases the customer is not aware of the additional and often unnecessary cost of the DCC transaction.
This margin is in addition to any charges levied by the customer's bank or credit card company for a foreign purchase.
[15][16] In May 2010 Visa Inc attempted to ban DCC on its network citing strategic issues and ultimately (as described by the ACCC) significant financial losses to its business.
Payment service providers must inform their contractual partners of the total currency conversion charges as a percentage mark-up compared to the latest available euro foreign exchange reference rate.
