Dynamic currency conversion

By James P. Sibley
This item appears on page 14 of the February 2016 issue.
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During a business trip to Mumbai, India, on Dec. 5, 2015, I took advantage of a free day to shop in the Colaba area of South Mumbai, where the Taj Mahal Palace hotel and the Gateway of India are located. 

Two blocks north of the hotel, I discovered an arts, crafts and jewelry store with marked prices that were fair (a rarity there). I purchased a box and three figurines of carved camel bone, charging them to my MasterCard. 

When the proprietor presented me with the charge slip after running my card through his card reader, I noted that the purchase amount appeared in both rupees (INR) and US dollars and that an “X” appeared in the box beside the dollar amount.

Wanting to take advantage of the favorable dollar/rupee exchange rate, I told the clerk that I wanted the charge to be processed not in dollars but in rupees so that the conversion would be made by MasterCard, not by the shop’s bank. He insisted that the charge would, in fact, be initially processed in rupees.

Well, that didn’t happen. After returning to the US, I checked my MasterCard account online and saw that the dollar amount on the charge slip was what had been charged by MasterCard and that the conversion rate of INR63.26 to $1 was over 5% more expensive than the conversion rate used on subsequent MasterCard charges I made that day (INR66.67 to $1), after I insisted that the vendors process my charges in rupees. 

After learning this, I emailed the store owner in Mumbai, and he was prompt in having his bank reverse the charge in US dollars and reprocess it in rupees.

Nearly all of the merchants I dealt with on this trip preferred to process my charges in US dollars until I made it clear to each that I would approve the charge only if it were made in rupees. Even the JW Marriott Mumbai, where I stayed, in the Juhu area, was going to run the charge in dollars. If I had not been alert, the estimated conversion difference on a charge of INR55,683 (near $843) would have been an extra $46. 

JAMES P. SIBLEY 

Spring, TX 

What Mr. Sibley experienced is known as dynamic currency conversion, or DCC. 

In a normal transaction in a foreign country, a customer purchases an item with his credit card or debit card at the exact cost of the item in the local currency, allowing his bank or credit card company back home to make the currency conversion at a rate near the posted daily rate that international financial institutions use among themselves.

In a DCC transaction, a vendor rings up the item in dollars, not in the local currency, using the exchange rate set by his local bank, a rate that will be somewhat higher than the international bank rate. This means that the customer is paying out a higher dollar value than he would have and the vendor is getting slightly more profit than he would have.

Due to this, vendors may prefer to run DCC transactions. However, they are supposed to ask each customer if it is OK to process the transaction in this way. MasterCard and Visa have made using DCC in a transaction without the customer’s knowledge “illegal” and will penalize merchants who are caught doing so. 

If a vendor uses DCC without the customer’s permission, the customer always has the option to void the purchase and insist that the transaction be completed in the local currency. The customer also can ask his bank or credit card company to dispute a DCC charge.

Please login or subscribe to ITN to read the entire post.

During a business trip to Mumbai, India, on Dec. 5, 2015, I took advantage of a free day to shop in the Colaba area of South Mumbai, where the Taj Mahal Palace hotel and the Gateway of India are located. 

Two blocks north of the hotel, I discovered an arts, crafts and jewelry store with marked prices that were fair (a rarity there). I purchased a box and three figurines of carved camel bone, charging them to my MasterCard. 

When the proprietor presented me with the charge slip after running my card through his card reader, I noted that the purchase amount appeared in both rupees (INR) and US dollars and that an “X” appeared in the box beside the dollar amount.

Wanting to take advantage of the favorable dollar/rupee exchange rate, I told the clerk that I wanted the charge to be processed not in dollars but in rupees so that the conversion would be made by MasterCard, not by the shop’s bank. He insisted that the charge would, in fact, be initially processed in rupees.

Well, that didn’t happen. After returning to the US, I checked my MasterCard account online and saw that the dollar amount on the charge slip was what had been charged by MasterCard and that the conversion rate of INR63.26 to $1 was over 5% more expensive than the conversion rate used on subsequent MasterCard charges I made that day (INR66.67 to $1), after I insisted that the vendors process my charges in rupees. 

After learning this, I emailed the store owner in Mumbai, and he was prompt in having his bank reverse the charge in US dollars and reprocess it in rupees.

Nearly all of the merchants I dealt with on this trip preferred to process my charges in US dollars until I made it clear to each that I would approve the charge only if it were made in rupees. Even the JW Marriott Mumbai, where I stayed, in the Juhu area, was going to run the charge in dollars. If I had not been alert, the estimated conversion difference on a charge of INR55,683 (near $843) would have been an extra $46. 

JAMES P. SIBLEY 

Spring, TX 

What Mr. Sibley experienced is known as dynamic currency conversion, or DCC. 

In a normal transaction in a foreign country, a customer purchases an item with his credit card or debit card at the exact cost of the item in the local currency, allowing his bank or credit card company back home to make the currency conversion at a rate near the posted daily rate that international financial institutions use among themselves.

In a DCC transaction, a vendor rings up the item in dollars, not in the local currency, using the exchange rate set by his local bank, a rate that will be somewhat higher than the international bank rate. This means that the customer is paying out a higher dollar value than he would have and the vendor is getting slightly more profit than he would have.

Due to this, vendors may prefer to run DCC transactions. However, they are supposed to ask each customer if it is OK to process the transaction in this way. MasterCard and Visa have made using DCC in a transaction without the customer’s knowledge “illegal” and will penalize merchants who are caught doing so. 

If a vendor uses DCC without the customer’s permission, the customer always has the option to void the purchase and insist that the transaction be completed in the local currency. The customer also can ask his bank or credit card company to dispute a DCC charge.