The best way to pay abroad

When abroad and paying for goods and services via a plastic card, we expect to pay something for the convenience. However, you might well find yourself subject to Dynamic Currency Conversion (DCC) – a practice that is deemed by many to be at best unfair and, at worst, a scam.

Those in the financial services world, such as credit card merchant services provider Planet Payment, prefers to regard DCC as a service that Planet boss Philip Beck says “enables merchants to offer international customers the certainty and convenience of paying in their own currency.”.

European hotels, restaurants and shops arrange with a local bank to override the currency conversion exchange rates offered by Visa and Mastercard and substitute their own. Rather than charging you in Euros, they convert it to pounds (or dollars if you are from the US) “for your convenience” to “prevent a fee”.

The charge is likely to be anything between 4% and 10% - far more than the 2.75% average charged by the credit card companies (and the 0% charged by Nationwide). This “service” has become rife in tourist areas throughout Europe; large retail chains are also party to it. They are supposed to tell you have choice before charging but, in practice, they never do.

Before signing, check your receipt carefully. The merchant will probably say they can do nothing about it (untrue); you may have to ask for the manager and insist on paying in Euros. Whatever the merchant says, it is a foreign transaction, so you probably be charged the fee regardless. The DCC “arrangement” allow a merchant to charge your account in your home currency with an artificially high exchange rate, while telling you they are doing you a favour and saving you credit card fees for currency conversion.

I’ll pay in Euros, thank you                                                                                          There is no justification for charging 1%, say, for currency conversion when the credit card companies do not actually do any conversion. They prohibit merchants from applying surcharges for use of a credit card yet they are, in reality, surcharging a whole class of transaction, namely, those in countries outside your home country.

Under VISA rules, UK cardholders have the right to pay for purchases in pounds sterling or in the local currency (which is the euro in, for example, Germany). Retailers and other outlets now routinely charge UK holidaymakers/travellers in sterling and then convert this sum back into euros at extortionate exchange rates. So avoid it by mentioning that you will be paying in Euros and checking your receipts carefully before signing and entering your PIN.

On being challenged over DCC, Planet Payment’s Beck said that DCC allows the hapless traveller “to see the true cost of their transactions at the time of purchase rather than when their credit card bill arrives. It is a value-added service for which a fee is paid in the form of margin on the exchange rate.”

Consumers, he said, can avoid this double-charge by checking their issuer’s policy on DCC (ideal for a wet Sunday afternoon) and, wait for it, “carrying cards that do not charge a fee for any international purchase, whether DCC is used or not.”

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