Are You Making This Costly Credit Card Mistake?

Do use your credit or debit card while traveling overseas? You could be guilty of driving up your credit card bill without even realizing it.

Why you ask? We’ll sum it up in three words – Dynamic Currency Conversion.

While swiping your credit or debit card abroad you may intuitively be inclined to pay in Dirhams – your familiar home currency. However, you may unknowingly be making a very costly mistake.

Dynamic Currency Conversion: What’s it all about?

Dynamic Currency Conversion (DCC) is a financial service that allows credit and debit cardholders to pay for transactions made overseas in their home currency, AED in our case. This is made possible due to a real time currency conversion at the point of sale.

Here’s how it works in practice – When you make a payment with your credit/debit card in a store abroad, let’s say in London, the merchant will ask if you want to pay in GBP or Dirhams. If you choose to pay in Dirhams, you automatically opt for the DCC service that instantly converts the purchase from GBP to AED.

What’s wrong with paying in your home currency?

The DCC service is provided by third-party financial institutions, in collaboration with the merchant. The conversion is done at an exchange rate determined by this third-party operator, which is almost always guaranteed to be more expensive than the rate your card provider would charge you if you didn’t opt for DCC.

But if you think it stops there, you’re wrong! Contrary to popular belief, you also have to pay an additional foreign transaction fee levied by your card provider.

Even though it may be convenient to see your purchase instantly billed in Dirhams, it isn’t worth paying an unreasonably high premium for this convenience.

How expensive is it to choose the DCC option?

Although there hasn’t been a local study in the UAE to confirm the fact that opting to pay in your home currency while swiping your credit card overseas is the more expensive option, there has been a lot of buzz around the topic globally.

A European study stands out in particular. The European Consumer Organization, a consumer advocacy group based in Brussels, Belgium conducted an analysis of cross-border DCC transactions carried out in non-Euro zone countries using Euro-denominated credit cards. The study revealed that customers opting for DCC when making a payment with a credit card ended up shedding an additional 2% to 5% on the purchase.