- Dynamic Currency Conversion for Credit Card usage abroad

Some shops and establishments abroad have started using a service called ‘Dynamic Currency Conversion’. If you opt to use this service when paying your bills with your UK based credit or debit card, you have the option of paying in the local currency or having the entire transaction amount converted into your home currency GBP immediately. This is called ‘Dynamic Currency Conversion’.

Benefits of ‘Dynamic Currency Conversion’:
The major benefit of ‘Dynamic Currency Conversion’ is that you will immediately know how much money you will have to pay in GBP for the bill that you have in foreign amount. Hence, you will be aware of the actual amount of expenses. Sometimes, this is very useful as you will know exactly where you stand with respect to your credit card expenditure limit and whether the transaction will exceed your credit card limit.

Paying in your home currency can be useful for knowing exactly how much you will be charged when paying for goods or services abroad. However, there are some disadvantages of the ‘Dynamic Currency Conversion’.

The biggest one is that nothing comes free in this world. Since ‘Dynamic Currency Conversion’ is a service, the catch is that you end up paying a very high exchange rate, that may be as high as 3-4% than the normal market exchange rate or the interbank forex exchange rates. Currency market is highly dynamic; the rates keep changing every second. Hence, the ‘Dynamic Currency Conversion’ scheme ensures that the exchange rates offered by it are not making it suffer a loss. So who bears the charges, it’s you - the cardholder.
Another point is that the retailer offering ‘Dynamic Currency Conversion’ may charge you a commission for this conversion service. You should always be careful to check that the exchange rate used in the conversion is competitive, check for any commission charged, and double check the total against what you were expecting to spend. This is because the exchange rate being used by the retailer may not be as competitive as the rate offered by your card company.

The best way to tackle this ambiguous situation is to have a rough idea of the exchange rates while you are holidaying abroad. If you believe that the retailer is charging heavily in the name of ‘Dynamic Currency Conversion’, as compared to the exchange rate that you have in your mind, then better to pay in foreign currency and let the credit card company exchange rates be applicable.
If you are in any doubt, ask for the bill in the local currency. If the retailer is operating Dynamic Currency Conversion, you should always be able to choose the currency of the country you are in.