UNDERSTANDING DYNAMIC CURRENCY CONVERSION

When checking out of your hotel abroad, sometimes you are offered the chance to pay in the local currency or your home currency using your credit or debit card. What should you do?

Should you pay your hotel via card or cash?

When you are paying for something abroad, sometimes you are given the choice of paying in either the local or your home currency.

e advantage of paying in home currency is you can immediately see what the item will cost. e disadvantage is that it might turn out to be more than you would have paid in the local currency.

When you pay in the local currency, as well as taking into account the rate of conversion as applied by your credit or debit card provider, you may also have to pay a foreign transaction fee, which will then be added into your costs.

WHAT HAPPENS WHEN YOU USE YOUR CARD ABROAD?

When you buy something (or withdraw cash) abroad in the local currency, it will be subject to the exchange rate the banks apply and, in addition, a foreign transaction fee will probably be levied. is fee will depend on the card you are using. (Some cards do not charge the fee, although this may be a promotion or they may recover the cost in some other way, for example, through the exchange rate.)

Both the transaction in the local currency and the foreign transaction fee will be converted into your home currency using what is called “the payment scheme exchange rate” from the day your transaction was processed. (For American Express, this is converted into US dollars rst, then your currency.)

e two amounts are then added together and divided by the original currency payment amount to work out the applicable exchange rate.

WHATI S DYNAMIC CURRENCY CONVERSION AND SHOULD I USE IT?

Dynamic currency conversion is the term used for giving you the choice of paying in either local or home currency. Paying in your home currency makes the price you’re paying clearer and means you don’t have to pay the foreign transaction fee. But the retailer may still be charging you a conversion fee, and the exchange rate – set by the retailer – might not be as competitive as the ones set by Visa or American Express – so paying in your home currency could end up costing you more.

WHAT SHOULD YOU DO?

Check the current exchange rate on credit cards, which is reset daily by Visa or American Express. Failing that, just say no – and insist on paying by card in the local currency. You will still pay the rate of the day plus the foreign transaction fee (unless you have a card that waives this fee), but you will not su er from what will be a substantially worse exchange rate.

WHEN IS DYNAMIC CURRENCY CONVERSION ASCAM?

It’s a scam when you’re not given a choice in paying it. For instance, when settling the bill in a restaurant, check that the conversion has not already been made when the point of sale machine has recognised your card as “foreign”. Business Traveller’s forum users have encountered this.

You can insist on paying in the local currency, no matter what the retailer, hotel or restaurant says, but you may later see a voided transaction on your bill.

In addition, it is o en a scam because it relies on “knowledge asymmetry” – namely that we are unable to easily and quickly assess the overall extra cost of paying in our home currency rather than the local currency.

See more on our forum at