Holidaymakers could see costs rise by 10 per cent this summer as “dynamic currency conversion” (DCC) provides traders with tempting opportunities to profit from people paying with plastic.
DCC, also known as “cardholder preferred currency”, has been around for many years. Hotels, restaurants and shops with significant numbers of tourists often provide the option to pay at a fixed conversion rate. The appeal to the traveller is that they will know instantly how much they have spent in sterling. But they are certain to lose out on the transaction.
The practice looks harmless: simply an additional choice. When you ask to pay with plastic or a card stored on a mobile phone abroad, the terminal will often display two figures: the bill in euros (EUR) or other local currency, and a figure in pounds (GBP).
Some holidaymakers may fondly assume that the sterling amount is the equivalent to the local currency at current exchange rates.
In fact, the cost in pounds includes a margin of up to 10 per cent. This is pocketed by the bank, which passes some of the cash back to the merchant.
Anyone who avails of dynamic currency conversion is voluntarily accepting a price increase that could add £1 to every £10 spent – a fast way to lose a slice of hard-earned cash.
Many holidaymakers know, when asked abroad if they would like to pay a sterling amount rather than the local currency, always to say ‘No’.
When offering dynamic currency conversion, merchants are supposed to follow strict guidelines:
- Making clear the local currency figure, the sterling sum and the margin added by the bank
- Offering the customer the choice, either verbally or by inviting them to select the preferred currency on the card machine
But during the course of a journey through Europe this month, it has become clear that some traders are not playing fair.
Once local currency has been selected, that should be the end of it. But some card machines are programmed to come up with another screen, typically reading: “Do you accept that if you choose not to take advantage of the guaranteed exchange rate, you will be subject to whatever rate the card company uses?”
Below it, there is a box marked “Accept” and another, “Reject”. Customers who are paying attention will select “Accept” because they understand that their bank will just use the appropriate prevailing rate – and that it will be better than the DCC deal.
But if “Accept” is selected, it turns out to be applied to a different question, ie ‘Do you accept the DCC rate of exchange?”
The correct, counter-intuitive answer is “Reject”.
Some proprietors may not even let customers get this far. After a satisfying lunch of dumplings and tea at a restaurant on the Royal Route leading south from the Old Town of Warsaw, the waiter simply selected “GBP” on the machine, adding 10 per cent to the cost of the meal.
When challenged about this scam, he claimed the machine was faulty and that nothing could be done.
For holidaymakers withdrawing cash abroad, ATMs generally offer dynamic currency conversion. It should also be declined. The profitability to the bank becomes clear by noting the GBP sum, selecting local currency and afterwards checking the account online to see the actual sum debited by the bank.
