Explained - Dynamic currency conversion for international travel

Imagine you are on an international trip to the United States of America (USA) and have just had a wonderful meal at a renowned restaurant. You get the bill with two options in front of you:

Option 1 -

The bill shows the total amount in the local currency, i.e. US Dollars (USD)

Option 2-

The bill also shows the total amount in Indian Rupee (INR) with an offered exchange rate and an additional fee 

If you choose the first option, you can simply pay the bill in USD. In the second option, you can see and pay the total cost in INR without doing complex conversions. The option works on the concept of DCC. Let’s understand what it is.

What is a DCC transaction?

The full form of DCC is dynamic currency conversion. A DCC transaction occurs when you pay for international transactions in your home currency. For example, paying a USD bill in INR allows you to know the exact cost in INR at the time of payment.

How does DCC work?

The amount is mentioned in the local currency and INR when transacting at an international ATM or Point-of-Sale (POS) terminal. This gives you two payment options. In the latter case, an exchange rate is also mentioned.

If you choose the second option of paying in INR, the amount is converted to INR at the specified exchange rate. An additional fee is also charged for the conversion, which is over and above the Forex markup fee charged by your credit card issuer. This completes the DCC transaction.

Benefits of DCC?

Choosing dynamic currency conversion at the ATM or POS terminals has some benefits. These are -

1. Expense tracking

One of the main benefits of DCC is that you can know the exact cost of your transaction in INR upfront. There’s no need to convert the costs whenever you want to pay for something. You can keep track of your expenses to ensure that your travel budget is not hampered by overspending.

2. No complicated calculations

When you choose DCC, you don't have to do complex calculations to figure out the transaction costs in INR. The converted amount is shown at the outset, helping you escape currency conversion calculations.

3. Guaranteed exchange rates

If you choose DCC, the exchange rate offered during the transaction is fixed for currency conversion. Later on, even if the rates fluctuate, the converted amount will not be affected. Alternatively, if you don’t choose DCC, your credit card issuer might convert the transaction’s value at a later date. Since the exchange rates keep changing, you might end up with an unfavourable rate when the conversion happens.

Drawbacks of DCC
 

Despite the benefits, DCC is best avoided because of its disadvantages. Some of the primary drawbacks of using DCC are as follows -

1. Unfavourable exchange rates

Usually, the exchange rates offered under DCC are unfavourably compared to current market rates. For instance, if the current exchange rate of USD 1 is ₹84.10, you might have to pay ₹85 or more for USD 1 under DCC.

The unfavourable exchange rates incur a loss on conversion, making DCC an avoidable choice. 

2 Added cost

Most credit cards charge a forex markup fee for international transactions. This fee facilitates international transactions on the card and is an added cost. In addition to this forex markup fee, there is always an additional charge for choosing DCC, which inflates the overall cost of the transaction.

3. Hidden charges

DCC charges might not be stated upfront, which makes them a hidden cost. When you get your credit card bill, you might discover high DCC charges, which prove to be an added expense.

The recommended course of action

The drawbacks of dynamic currency conversion far outweigh its merits. That is why it’s best to avoid DCC as much as possible. Thankfully, DCC is voluntary, and you can opt out.  Instead, here’s what you can do when paying for international transactions -

1. Choose the local currency

Paying in local currency is the best way to avoid paying DCC charges and incurring unfavourable exchange rates. You can pay in cash or use your credit card for your transactions.

2. Look for favourable exchange rates

If converting INR to international currency, look for institutions offering favourable exchange rates.

3. Choose the right credit card

The right credit card also helps in saving on international transactions. Look for a card that is globally accepted, has low forex markup fees, and offers favourable exchange rates.

The FIRST WOW! Credit Card can be the right choice for international travel. Let’s uncover how.

FIRST WOW! Credit Card - Your smart travel partner
 

The FIRST WOW! Credit Card is a secured cardoffered against a fixed deposit (FD). It is available easily, is globally accepted, and has zero forex markup fees. This means you don’t have to pay additional charges for international transactions. Moreover, if you avoid DCC and pay in the local currency, you can also avoid the DCC charges.

Thus, the FIRST WOW! Credit Card helps you save on international transactions making it the perfect travel partner. That’s not all! You also get favourable exchange rates with a host of benefits like -

1. Zero-interest cash withdrawals for up to 45 days
2. Complimentary roadside assistance cover
3. Credit shield protection against theft and fraud
4. Safe and convenient payment option
5. Low interest rates that start from just 9% p.a.
6. Up to 3X reward points on your spends

Travel the world, cost-effectively!

If you are planning an international trip, understand the concept of dynamic currency conversion and how it works. Avoid it to save on hidden charges and bad exchange rates. Pay in the local currency, either in cash or with the FIRST WOW! Credit Card and save on the added charges.

Be a smart traveller. Choose the FIRST WOW! Credit Card and make your trips cost-effective without compromising on the thrill.