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Dynamic Currency Conversion Explained

25th May 2017

Dynamic Currency Conversion Explained

Have you ever tried to use your Aussie credit card to pay for a transaction overseas, and been given the choice to pay in Australian dollars (AUD) instead of in the local currency? Or maybe you've noticed when you've done some online shopping on an international website that the prices were displayed in AUD rather than in the local currency? 

When this happens, the merchant you are buying from is using a service called Dynamic Currency Conversion (DCC) to offer customers the chance to pay in their home currency instead of the foreign currency.

But, what exactly is DCC and how does it work? Today we will explain the ins and outs, and the pros and cons, of DCC for you, so that next time you are given different payment options, you will understand the implications of each.

What is Dynamic Currency Conversion?

Dynamic Currency Conversion (DCC) is a financial service in which credit card holders, when making a payment in a foreign currency, have the cost of the transaction converted to their home currency at the point of sale. This service is provided by third party operators, in association with the merchant, and not by the actual card issuer.

When the cardholder selects to pay in their own currency, the DCC service converts the local currency to the cardholder's home currency, using an exchange rate established by the merchant, or the financial institution that will process the transaction.

It is this exchange rate that has made DCC quite a controversial customer offering, with strong opinions both for and against how much it really benefits the customer using it. So let's have a look at what why so that you can be a better informed customer.


Advantages of Dynamic Currency Conversion

Those that are for offering customers the option to use DCC outline the following benefits:

  • When the cardholder opts to pay in their home currency, they lock in the exchange rate offered by the merchant at the time of the transaction. The customer then knows exactly how much they are being charged in their own currency. This differs to using the exchange rate offered by their card issuer, because in this case the exchange rate is only applied to the transaction on the day it is processed, and not on the day of the purchase - and during this time, the rate could potentially change
  • Supporters of DCC believe this makes it easier for customers to understand prices in their home currency - they see the final amount at the time of payment, rather than weeks later on their statement
  • This also then makes it easier for customers to manage their travel budget and expenses
  • The customer has full transparency of what conversion rate is applied to their transaction at the time of purchase
  • There is also a cost benefit for the merchant offering DCC - the exchange rate that they apply to the transaction is determined between the merchant and the third party DCC provider, so they each benefit from a margin percentage applied to the inter-bank exchange rate

Disadvantages of Dynamic Currency Conversion

The main objection to DCC is this margin and how it affects the exchange rates - and fees - that get applied to the card holder's transaction.

While the final exchange rate is disclosed to the customer at the point of sale, the margin percentage included in this rate is not. And when it comes to DCC, this margin is set by the merchant, their financial institution or the service provider, so it changes from merchant to merchant.

Critics of the DCC service believe that:

  • customers do not fully understand the margin that is applied and who benefits from it
  • customers are not fully aware of the fees that still apply to their transaction
  • customers are not aware that DCC can be applied to online transactions, ATM withdrawals and at a retail point of sale, so they may get caught out on different transaction types

The costs and fees associated with DCC and foreign transactions can be complicated, so we've tried to break it down for you as simply as possible:

Scenario #1 - Not Using Dynamic Currency Conversion

As the customer, you choose to pay in the local currency instead of your home currency. So, the transaction amount is converted into AUD by your card issuer - MasterCard, VISA or American Express - using their exchange rate.

The card issuer uses the exchange rate available on the date the transaction is processed to your account. This means that the rate can change from the time you made the purchase, to the time your transaction is added to your account. However, the exchange rate offered is usually quite competitive, and is available through the card holder's website.

This AUD amount then has a foreign transaction fee applied to it by the bank itself - usually around 3% of the transaction value in AUD. This fee is charged by the bank when they have to process an international transaction. 

Scenario #2 - Using Dynamic Currency Conversion

As the customer, you opt to use the DCC service to pay in AUD at the point of sale. Your transaction is converted by the merchant, using the exchange rate they have set with their financial institution or the DCC service provider. As the customer you then know the exchange rate you are being charged at the time of purchase, and you know the final amount you will pay in AUD.

But, because the exchange rate applied has a margin worked into it, to benefit the merchant and the service provider, the final AUD amount charged to your account lands up being higher than if you had opted for scenario #1.

And this is where the biggest pitfall comes in.

At this point, most customers believe that because they converted their transaction into AUD at the time of purchase, they then won't have to pay the bank's foreign transaction fee because they aren't paying in a foreign currency.

Unfortunately this just isn't the case.


"A Foreign Transaction Fee is payable as a percentage of the Australian dollar value of any Foreign Transaction." - Westpac*


This is a direct quote from Westpac's website. It doesn't say that the fee will only apply to "purchases in a foreign currency". The fee applies to any foreign transaction, regardless of the currency being charged at the point of sale. Your bank still recognises that your transaction originated outside of Australia, so in most cases you will still be charged the bank's foreign transaction fee. But because your final transaction value in AUD is higher, your fee is also higher, so you land up paying more for your transaction overall than you would have in Scenario #1.


Am I Paying More With Dynamic Currency Conversion?

A direct comparison of DCC vs. non-DCC payments isn't really possible, because the margin applied to the DCC exchange rate is set by the merchant or the financial institution processing the charge, and can vary from merchant to merchant. Exchange rates also vary by card issuer, and fees vary by bank.

In some instances, the DCC exchange rate may be favourable to the customer. In others, the margin applied could be so high that it could make the exchange rate worse than the one charged by the card issuer directly.

The combination of margin + bank fees could land up making your final transaction amount more than if you had opted for Scenario #1.

By opting to use the Dynamic Currency Conversion service, you are essentially paying for the convenience of not having to do your own math to work out the final AUD transaction amount.

Some people are all for paying for convenience.  But if you're not one of those people, then going forward you may want to politely say "thanks but no thanks" when given the option to pay in your home currency.


*Westpac Foreign Transaction Fee information available on

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