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Dynamic Currency Conversion (DCC): Understanding It and Markup Fees
Posted on Thursday, January 23rd, 2025 | By IndusInd Bank
During international travels, one of the things you must be careful about is the currency you are paying in for your expenses. At most Point-of-Sale (POS) terminals and ATMs in foreign countries, you will often come across an option to pay in your home currency instead of the local currency while using your credit card. This is called Dynamic Currency Conversion (DCC).
While DCC can make credit card payments at international destinations easier by a large margin, it can also come with additional fees and other aspects that can make your purchases costlier. Let’s explore dynamic currency conversion, its workings, pros and cons, and more.
What is DCC and How Does it Work?
- DCC is a service that allows cardholders to pay in their home currency instead of the local currency during international transactions.
- In DCC, the currency conversion takes place in real-time, that is when the cardholder is making the payment. This contrasts with alternatives where the cost (in the cardholder’s home currency) may not be revealed unless one looks at their card statement.
- The total DCC cost will include other charges, too, such as a markup fee. For the uninitiated, a markup fee covers the cost of converting foreign currency into your home currency.
- Let’s consider the following example:
Mr Subhash is in Paris, dining at a restaurant, and the bill comes to €100.
If Subhash chooses DCC, the €100 is converted to Indian Rupees (INR) at a specified exchange rate. Let’s assume this is ₹90 per Euro.
With DCC, Subhash’s bill becomes ₹9,000. In addition, a credit card DCC fee or a markup of 3% brings the total to ₹9,270.
- Additional charges may also apply, at the rate specified by the credit card provider.
- For domestic travels, using a UPI credit card like the IndusInd Bank Platinum RuPay credit card is advisable, as it takes away the hassle of such charges.
Merits and Demerits of DCC
Wondering if you should opt for DCC on your next foreign trip? Looking at its pros and cons can help:
| Merits | Demerits |
| Transparency in Billing: With DCC, you can see the transaction amount in your home currency in real-time. This makes it easier to understand how much you are spending. | Higher Costs: The conversion rates for DCC are often higher than the standard exchange rates. |
| Predictable: You know the exact amount that will be debited in your currency. This avoids surprises on your card statement later. | Markup Fees: A credit card DCC fee, typically ranging from 3% to 5%, is added, which can further increase the transaction cost. |
| Convenience: DCC takes away the need to calculate exchange rates, which can be a boon if you are unfamiliar with the local currency. | Potentially High Foreign Transaction Fee: If the DCC rate is high, the foreign transaction will be high, too. This is because the latter is usually a fixed percentage of the former. |
While DCC offers transparency, its added fees and higher conversion rates may outweigh its benefits.
Should You Avoid DCC and Instead Pay in Local Currency?
In most cases, it is better to pay in the local currency rather than opting for the DCC. Let’s look at both options:
Local currency is better because:
- When you pay in the local currency, the exchange rate is usually lower.
- You only pay your card issuer’s standard foreign transaction fees and can avoid other fees.
- You can see a breakdown of costs, often at a lower rate with your card issuer’s detailed statement.
DCC may be suitable if:
- You urgently need to know the exact amount in your home currency.
- You do not mind the additional fees.
When using your card abroad, always carefully review the transaction slip or screen to confirm whether the DCC has been applied. You can decline DCC and opt to pay in the local currency whenever possible.
Also Read: Essential Credit Card Terminology- Key Terms and Definitions Explained
Conclusion
Dynamic currency conversion may seem convenient. However, it often comes at a higher cost because of less favourable exchange rates and additional fees. Opting to pay in the local currency may ensure better savings.
As a savvy traveller, you must get a thorough idea of how the DCC works and the costs that can come with it. IndusInd Bank offers a range of travel-friendly Credit Cards that come with a host of travel-related perks and discounted foreign transaction fees to make your international transactions all the more rewarding.
Apply today to enjoy seamless and cost-savvy international travels!
Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
