To DCC, or not to DCC, that is not the question

To DCC, or not to DCC, that is not the question

Changes to EU Regulations governing DCC

A casual search for Dynamic Currency Conversion (DCC, or sometimes Cardholder Preferred Currency, CPC) online will turn up a multitude of articles explaining: what it is, the pros and cons as a cardholder, how your choice of card issuer influences what you may pay, why you should use it as a merchant and some nefarious practices around overriding cardholder choice.

But for the uninitiated, DCC is a process whereby a card payment terminal offers the price in the local currency, (for example, Euros) and the price in your own currency, (Pounds Sterling if you’re from the UK). This is accompanied by additional information about the exchange rate applied and any margin included in the calculations. And then the cardholder decides which currency they want to use.

Every provider of DCC services to merchants will make their own choice of exchange rate provider and apply their own margin. This makes the cardholder’s decision, should they choose to try to do the mental gymnastics, more complex when going from shop to café to hotel.

Clarity around charges at the POS

Science and engineering measurements are often quoted under standard conditions, or there is a reference point. For example, all longitude measurements in navigation are referenced to an imaginary line passing through Greenwich, England.

But what could possibly be used as a reference for DCC?

The European Central Bank (ECB) is the central bank of the 19 European Union countries which have adopted the Euro. It sets a daily exchange rate that influences the rates of the institutions involved in foreign exchange across the Union.

In an attempt at clarity, a European Union directive effective from 19^thApril 2020¹ requires that any DCC transaction, where the card is issued in the European Economic Area² (EEA) and the merchant is EEA-based, should have the mark-up percentage displayed over the ECB rate.

This shows cardholders how much more, as a percentage, they are paying for the conversion in comparison to the ECB base rate. Furthermore, this information should be presented on the payment terminal screen and on the cardholder’s receipt.

So, a visitor to an EU country should have the following information provided during the transaction:

At Ingenico, we have been reviewing existing DCC implementations and advising our customers on the most appropriate manner to display this information, incorporating the changes into solutions as required.

Clarity around charges by the issuer

Further changes lie ahead. From 19^th April 2021, the same legislation will require EEA issuers to inform their cardholders of charges applied for transactions carried out in an EEA currency that is not the native currency of the card. This must be done not only by appropriate wording in the T&Cs but also through an electronic message, e.g. SMS, email or bank app on a mobile device, and sent “without undue delay”.

However, this doesn’t cover all eventualities:

• There is no requirement to act with the same clarity for non-EEA currencies.
• And an issuer may charge for transactions carried out abroad regardless of the transaction currency, which in the case where the cardholder has selected DCC will be the same currency of the card and not subject to this part of the regulations.

What might this mean?

These changes will bring some clarity to the charges associated with using a card in the EEA region. Cardholders will be better equipped to work out what their best options are and investigate how to minimise the charges incurred, including switching to alternative issuers geared to the travel market.

Cardholder choices may even affect the profitability of DCC as there is revenue accrued in this for many actors in the chain.

If we ever get back to regular overseas travel, and with Brexit rapidly approaching, what all this means for EEA travellers to the UK, or vice versa, remains unclear. However, well architected solutions can be future proofed by leaving the business rules and decision making to the exchange rate lookup, so the terminal simply needs to react to the information supplied.

Whatever the outcomes, Ingenico will continue to work closely with its customers to advise and build the most appropriate solutions.

1. In the light of the challenges caused by the COVID-19 pandemic on the 9^th of April, the EU issued a softening of the implementation rules: (a copy of the statement is here)
2. EEA Countries: Bulgaria, Croatia, Czech Republic, Denmark, Euro Zone, Hungary, Iceland, Liechtenstein, Norway, Poland, Romania, Sweden, UK