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What is Dynamic Currency Conversion? (DCC)
Dynamic Currency Conversion (DCC) is a payment option that allows international shoppers to pay for purchases in their home currency, rather than the currency of the merchant's location.
This can be beneficial for travellers who want transparent costs and the convenience of not calculating exchange fees themselves.
For merchants, DCC is beneficial as you can earn additional revenue via exchange rate margins.
As international travel continues to grow post-Covid and tourists are increasingly using digital payments, businesses that serve an international clientele are compelled to provide payment options that are accessible and convenient.
One of the most popular ways of enabling international transactions is Dynamic Currency Conversion. It gives shoppers travelling abroad a choice to pay in their home currency or the local currency.
Dynamic Currency Conversion can be enabled for card present transactions made via chip and pin, contactless and mobile wallets.
When DCC transactions are enabled for card-not-present transactions, it is often called eDCC and can be available on the phone, online and pay by link. It is also available when an international shopper wants to withdraw cash in local currency from ATMs.
A study by European Central Bank found that 30% of international travellers would want to use the DCC option, but it greatly varies depending on country and payment method.
Hence, there has never been a better time to offer DCC to your international customers. Whether you're a business owner or a customer, understanding the ins and outs of DCC can help you make informed decisions about your payment options.
What are the benefits of DCC to business owners?
Increase in revenue:
- Choice, clarity and convenience improve customer satisfaction which in turn leads to an increase in sales. Shoppers are saved from the struggle of worrying about FX rates and carrying various currencies with them. In most cases, DCC service is cost-neutral to the shopper but can significantly increase the merchant's revenue. Moreover, international travellers expect that they will get the option to opt into DCC if they wish to.
- It encourages sales from high-spending foreign travellers, who otherwise would be sceptical about paying in foreign exchange.
- Some DCC providers, like Planet, give merchants a share in mark-up fees generated when an international shopper chooses to pay in their home currency or CPC (cardholder preferred currency). Hence, merchants can enjoy an additional income stream, which in turn can be the greatest tool to reduce payment processing costs.
Reduction in costs:
- Sometimes shoppers legitimately buy a product but are not able to recall their purchase when they look at their bank statements. Using DCC functionality can reduce disputes and chargebacks, which are often triggered by price misinterpretation.
Simplified operations:
- It helps create quicker and easier travel expense reports.
How does DCC work?
Once it has been enabled on a merchant terminal.
1. The merchant initiates a payment at the Point of sale (POS) terminal, and the shopper inserts/taps their credit card, e.g. Visa, Mastercard, or debit card.
2. During the authorisation stage, the merchant’s payment processor then recognises where the shopper’s card was issued and understands the currency of the country the shopper is from. e.g. EUR, AUD, USD, GBP.
3. The payment processor calculates the transaction amount in the customer's home currency based on the current exchange rate and adds a markup fee, typically a percentage of the transaction amount.
4. If the shopper’s currency differs from the local currency, the POS terminal gives two options to the shopper – pay in local currency or home currency. Shoppers can view the markup fees, foreign exchange rate and the final price in real-time. This helps them make an informed choice of which currency they should transact in.
5. If the shopper chooses to pay in their own currency using DCC, the DCC provider's exchange rate and commission will be applied.
6. If the shopper decides to pay in the local currency, the transaction is processed in the local currency, and the card issuer will apply their exchange rate and foreign transaction fees later. In this scenario, the shopper does not instantly find out the final amount, as it will be available for their viewing in their bank statement later.
7. The receipt will show the amount in local amount and currency, DCC amount and currency, latest exchange rate, mark-up% and disclaimer regarding DCC acceptance and DCC provider’s name and details. The rate and value printed on the receipt are locked in and are the same value that appears on their cardholder statement when they get home. This makes it easy for shoppers to reconcile their expenses.
8. Irrespective of the shoppers’ choice, the merchant’s acquirer will settle the card transaction in the terminal’s currency for the entire amount.
9. Some DCC providers, who share gains from the currency conversion fees with the merchant, will provide the rebate to the merchant regularly (e.g. weekly, monthly).
The Planet Guide to Dynamic Currency Conversion
How to choose a great DCC provider?
- The DCC provider should be able to accept a wide range of currencies. Planet, for example, accepts 150+ currencies.
- The DCC provider should be able to provide a competitive exchange rate compared to exchange rates offered by card issuers. It should also be able to provide a best-rate guarantee.
What is the best rate guarantee (BRG)?
It is a feature by offered by some DCC providers that guarantees the shopper that the currency conversion rate offered by the DCC provider is better than the rate offered by the card issuer for the same transaction.
After transacting, if the shopper, finds out that they could have received a better exchange rate by using their card issuer’s rate, the DCC provider promises to refund the difference. The shopper must follow established procedures within a certain timeframe to claim the refund.
This is a great way to gain the shopper's trust in the merchant and DCC provider. It’s noteworthy that BRG only applies to the exchange rate and no additional fees associated with DCC.
- The DCC provider will ideally give you a good share of the markup fees generated when international shoppers pay in their home currency. They should have negligible activation cost and monthly minimum transaction value.
- If you’re a global company, the DCC provider should have a global reach to simplify your operations. Planet, for example, is in more than 60 countries.
- The DCC provider should have a single proprietary platform which is intelligent, secure and stable. Planet’s platform has a centrally hosted & complete end-to-end transaction platform that manages global connectivity and interaction between consumers, merchants, banks and payment networks.
- The DCC provider should be able to offer good customer support. They should take ownership of the whole conversion rate process, including direct treasury exchange rate, transaction processing, back-end reconciliation, settlement and funding.
- The DCC provider should have a good track record of compliance and security.
- It is key that the DCC provider is compatible with your payment gateway.
How to maximise your DCC performance
- Conduct sales training to assist your team in understanding the advantages of DCC. They should feel empowered to offer it to the shoppers to increase the opt-in rate.
- It is important sales staff mention to the shopper that the costs associated with DCC are fully transparent and available for them to see instantly.
- It is also paramount that the sales staff does not assume the shopper’s preference concerning opting into DCC.
- Measure the eligible transaction volume for DCC against the volume of transactions converted using DCC. A higher hit rate would mean more rebate revenue for your business.
What are the potential risks of DCC to business owners?
- Higher costs for customers: DCC may sometimes result in higher costs for customers due to less favourable exchange rates and additional fees charged by the DCC provider. To mitigate this risk, it is important to choose a DCC provider that provides the best rate guarantee and makes it transparent.
- Lack of transparency and reputational risk: While regulations around DCC ask service providers to disclose the markup in receipts fully, some shoppers may not fully understand how it works and may feel they’re being charged unfairly. When shoppers feel misled, their loyalty can drop, and they may file customer complaints and negative reviews. Hence, it is important to train sales teams to answer any questions the shopper might have.
- Technical risk: Integrating DCC with payment systems exposes the merchant to potential risks such as system downtime and security breaches.
- Legal and regulatory risks: Merchants need to comply with regulations and industry standards around DCC, if they don’t want to be subject to fines and legal issues.
Busting common myths about DCC
1) "DCC is only available for transactions in major currencies"
False. DCC is available for transactions in most currencies, including exotic currencies. However, some DCC providers may not offer DCC for certain currencies or may charge higher fees for less commonly used currencies.
2) "It only benefits service providers and merchants, not customers"
False. DCC benefits customers by providing them with the convenience of paying in their currency and knowing the exact amount they will be charged in their currency. Additionally, some DCC providers offer a Best Rate Guarantee, which ensures that the DCC rate will be better than the card issuer's rate.
3) "It is a scam and a way for service providers to make extra money"
False. DCC is a legitimate service that is authorised by card schemes and regulated by financial authorities. It allows customers to pay in their currency for international transactions. The exchange rate and any fees are transparently displayed to customers before they make the payment, and customers can choose whether to accept DCC or not.
4) "It is mandatory for international transactions"
False. Customers always have the option to choose whether or not to use DCC for international transactions. They can opt out of DCC and pay in foreign currency instead.
In conclusion, Dynamic Currency Conversion is a payment option that provides convenience and transparency for international transactions. It allows customers to pay in their own currency, which provides a clearer understanding of the total cost of the transaction, and eliminates any confusion or uncertainty around exchange rates.
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