Why paying for things abroad in home currency is a bad idea

Why paying for things abroad in home currency is a bad idea

Thu, 15/06/2023 - 15:44
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When it comes to paying for things abroad, currency choice "services," which offer credit cardholders the convenience of being charged in home currency rather than the local one, can be costly. A study revealed the fees charged for these transactions can be exorbitant.

International customers are increasingly exposed to dynamic currency conversion (DCC), that is, the option during checkout to proceed with a transaction in the home currency instead of a foreign currency.

Exorbitant fees

However, one study, cited by CNN, shows the average fee applied to this kind of conversion is a whopping 7.6%, more than double the cost of paying in the local currency (usually between 1.5% and 3%).

Despite the high fees, research published in the Journal of Public Policy & Marketing shows that more than half of international customers still choose to pay in their familiar home currency. The most obvious explanation is an understandable preference for the familiar when dealing with money abroad.

Any advantages?

Dynamic Currency Conversion may, on the other hand, reduce some risks for customers such as fluctuations in the exchange rate between the transaction and the handling of that transaction by the customer's home bank, because the exchange rate is guaranteed by the DCC service provider. In some cases, it may be preferable for customers to use DCC as long as the DCC markup applied by the provider of DCC does not exceed the conversion fees applied by the home bank.

Journal of Public Policy & Marketing

Press releases from Divers Alert Network (DAN)