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Once viewed as an added perk—something nice to offer but by no means expected—Dynamic Currency Conversion has proven increasingly essential in recent years. Global travel is returning to pre-pandemic levels, and digital payment methods have created an expectation of seamless and convenient transactions across borders.
For businesses with global customers, or those aiming to attract them (particularly those in retail and hospitality) integrating DCC can be crucial to staying competitive.
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.
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.
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.
How does Dynamic Currency Conversion work?
Once it has been enabled on a merchant’s card terminal or within an online payment system, DCC works through the following steps:
1. Payment initiation
The shopper inserts or taps their foreign credit/debit card on the merchant’s card terminal (for in-person payments) or enters their card details into an online checkout form (for online payments).
2. Automated card detection and currency conversion
During the authorisation stage, the merchant’s payment processor recognises where the shopper’s card was issued and identifies the shopper’s home currency (e.g. EUR, AUD, USD, GBP, etc.).
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.
3. Shopper currency selection
If the shopper’s currency differs from the local currency, the POS terminal or online checkout interface presents two options to the shopper: pay using the local currency or pay in your 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 select.
- If the shopper chooses to pay in their home currency, the DCC provider’s exchange rate and commission are applied.
- If the shopper decides to pay in the local currency, the card issuer will apply their exchange rate and foreign transaction fees at a later stage. In this scenario, the shopper does not immediately know the final amount, which will appear on their bank statement later.
4. Transaction completion and receipt
The transaction is processed and completed as normal after the shopper chooses the currency they want to pay in. A typical DCC receipt will show the following details:
- The transaction amount in the local currency.
- The DCC amount in the shopper’s home currency.
- The latest exchange rate.
- The markup percentage.
- A disclaimer regarding DCC acceptance, along with the DCC provider’s name and details.
The exchange rate and values printed on the receipt are locked in and will match the value on the cardholder’s statement when they get home. This consistency makes it easier for shoppers to reconcile their expenses.
5. Settlement
Irrespective of the shopper’s choice of currency, the merchant’s acquirer will settle the card transaction in the terminal’s currency (i.e. the currency in which the merchant operates and receives payments) for the entire amount.
Role of POS systems and payment processors
- Payment processor: A payment processor is an intermediary that enables businesses to accept payments. It handles the transfer of payment data between the merchant, the card network, the DCC provider, and the customer’s bank. Some processors, including Planet, offer DCC as part of their services, allowing merchants to seamlessly integrate currency conversion and enhance the payment experience for international shoppers.
- POS systems: Point-of-sale (POS) systems are the hardware and software used by merchants to accept payments in-store or online. These are the “front-end” technologies and interfaces that present shoppers with the option to pay in their preferred currency.
DCC vs traditional currency conversion
Exchange rate and fees
The exchange rates in DCC often include a markup over the daily bank exchange rate. This markup is a combination of the currency conversion fee and the provider’s profit margin. In contrast, traditional currency conversion uses the cardholder’s bank’s exchange rate, which is typically closer to the interbank rate.- Customer experience
Unlike traditional currency conversion, which takes place behind the scenes, DCC offers immediate and upfront clarity on how much a transaction will cost in the cardholder's home currency. This can be particularly appealing for those who prefer to know the exact cost at the point of sale without worrying about future fluctuations in the exchange rate.
Benefits of Dynamic Currency Conversion
Benefits for shoppers
- Convenience
DCC removes the burden of mentally calculating currency conversions, giving shoppers a hassle-free payment experience. Whether shopping online with a foreign retailer or in person while abroad, it allows international payments to feel just as seamless as domestic payments.
- Transparency
DCC allows shoppers to view and pay the transaction amount in their home currency with the latest daily exchange rate and all additional fees fully disclosed. What shoppers see on the card terminal or the online checkout screen is what they’ll pay. They can have peace of mind that there will be no unfortunate surprises when they check their bank statement later.
Benefits for businesses
- Broadened reach
Global payment solutions like DCC allow businesses to expand their appeal across borders and tap into new markets. It signals to shoppers that their payment experience will be as convenient, transparent, and secure as with a local business.
- Extra revenue stream
In addition to increased sales from a broader reach, some payment service providers share a portion of the currency conversion fees paid by shoppers who opt for DCC. These rebates may be issued regularly, for example, on a weekly or monthly basis and offset the cost of taking international payments
- Enhanced customer satisfaction
Customers appreciate the convenience and clarity DCC provides. It gives them a greater say in what they pay and how they pay it, making for a more empowering and seamless payment experience. This level of control and transparency fosters greater customer loyalty and retention.
- Fewer payment disputes
DCC allows shoppers to pay in the currency they’re most familiar with and makes it clear exactly how much they’re being charged. As a result, there’s less confusion or room for error, significantly reducing the likelihood they’ll dispute a payment or issue a chargeback request.
Best practices for implementing DCC
- Clear communication with customers
It is important for merchants to communicate both the benefits and the costs associated with DCC. Sales staff must not assume the shopper’s preference concerning opting into DCC and ensure the shopper fully understands the service before giving their consent.
- Staff training and support
It is highly beneficial for merchants to conduct sales training to assist their teams in understanding the advantages of DCC. When staff feel empowered to offer DCC to shoppers and to explain its benefits, the DCC opt-in rate increases. Planet offers their DCC customers comprehensive training from day one, in-store and ongoing e-learning support in multipple languages.
- Technological integration and maintenance
Merchants should work closely with their DCC provider, running tests and conducting risk assessments to ensure DCC is seamlessly integrated within POS systems and e-commerce platforms prior to launch. It’s also essential to continually monitor the system, running any updates and security platforms as soon as they become available.
- Understand how rebates work
Merchants should have a clear understanding of how rebates from DCC providers work, including the frequency and structure of payments. This insight can help businesses better evaluate the financial benefits of implementing DCC. It helps to measure the eligible transaction volume for DCC against the volume of transactions converted using DCC. A higher hit rate means a more rebate revenue for the business.
Key features to look for when choosing the right DCC provider
1. Wide currency acceptance
The DCC provider should be able to accept a wide range of currencies. Planet, for example, accepts 135+ currencies.
2. Competitive exchange rates
The DCC provider should be able to provide a competitive exchange rate compared to exchange rates offered by card issuers. Look for a provider that offers a “best-rate guarantee” (BRG). Planet’s Best Rate Guarantee ensures that the rate provided is better than the card issuer’s. If the card issuer’s rate is better on another transaction on the same day, Planet refunds the difference up to 150%.
3. Comprehensive, unified payment platform
The DCC provider should have a single proprietary platform which is intelligent, secure and stable. For example, Planet has a centrally hosted and complete end-to-end transaction platform that manages global connectivity and interaction between consumers, merchants, banks and payment networks.
4. Strong compliance and security protocols
It’s imperative that the DCC provider has a good track record of compliance and security. This includes adhering to industry standards such as PCI DSS, following local laws and regulations around data security, and continually monitoring the system for potential vulnerabilities.
5. Responsive customer support
The DCC provider should have a customer support team in place to help merchants troubleshoot and resolve issues promptly when needed. The provider should take ownership of the entire conversion rate process, including managing exchange rates, transaction processing, back-end reconciliation, settlement and funding.
6. Questions to ask potential providers
- What is your revenue-sharing setup for businesses that integrate DCC? How frequently are rebates issued?
- Do you recommend integrating DCC into our existing gateway, or switching to a unified platform?
- What are your security and compliance protocols regarding DCC?
- How many currencies does your platform support?
- What level of technical support do you provide for onboarding and ongoing maintenance?
- Do you offer any DCC training programs and materials for staff?
Getting started with DCC
To begin offering DCC to your customers, the first step is to reach out to payment service providers for details on integration, revenue sharing, and technical requirements.
At Planet, our end-to-end payment platform makes it easy for merchants to offer DCC to their customers and take full advantage of this additional revenue stream. As a global payments specialist, we have the expertise and resources to support merchants in navigating the complexities of cross-border payments and currency conversion.
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