As far as bank robberies go, this one is bigger, and just as fiendish, as any. It is called “dynamic currency conversion” and it is a robbery being perpetrated by banks upon the unwitting customers in their tens of thousands.
Unless this dynamic currency conversion (DCC) scam is stopped, profits from Australian customers alone will run into the billions as, according to bank insiders, a DCC fee is levied on up to 90 per cent of overseas credit card transactions. It is typically 5 per cent or more of the transaction value.
The sly elegance of the banking ruse is that it is customers themselves who choose to be fleeced.
It works like this: those who have travelled overseas over the past year, armed with their Visa or Mastercard, will have been offered the choice of paying for – say a hotel, car hire or a restaurant bill – in either the local currency or in Australian dollars.
This seems a wonderful service at first glance. Could it be that the banks and credit card companies are finally giving customers the chance to escape those dreaded currency conversion fees which riddle a traveller’s bank statement at the end of a trip?
Not in the least: you will still pay your foreign exchange fee no matter which option you choose. But if you choose to pay in your own currency, in $A, you will be slugged with a fee of 5 per cent or more for “dynamic currency conversion” (DCC) as well.
Roughly, the fee is split three ways between the card issuer (the bank), the merchant (who bills you for their goods or services) and the DCC provider (a middleman who tees up the arrangement).
Every time you press the button “Pay in AUD” you are inadvertently ripping yourself off. Most people choose that option though, as it is counterintuitive to pay in a foreign currency given the logic that another conversion fee would seem likely. As the banks clearly appreciate this logic, and profit hugely from it, and as there is no disclosure of fees to customers at point of sale, there is every likelihood the DCC scam will end up in the hands of regulators and class action lawyers.
The banks were ducking for cover last week. ANZ and Westpac were approached for comment for this story and failed to respond.
Commonwealth Bank issued a brief statement explaining that DCC fees were incurred, “due to the costs and risks associated with overseas transactions”. National Australia Bank, sensing perhaps the jig might be up, actually admitted customers should choose to pay in the local currency:
“NAB advises its customers who are travelling overseas to always pay in the local currency instead of Australian dollars so they can avoid paying additional charges for currency conversion.
Then there was industry peak body the Australian Bankers Association – normally so effusive in its advice on how governments and others should conduct themselves – but in this instance lost for words. The ABA pointed Fairfax Media in the direction of AFMA (Australian Financial Markets Association), then, realising it had recommended the wrong industry body, suggested we try the Australian Payments Clearance Association (APCA) which we did, only to be told by the APCA, despite the advice of the ABA (and notwithstanding the newfound absence of the AFMA in the process), that they had not heard of DCC.
Interestingly, it appears the credit card providers, Visa and Mastercard, don’t benefit from the DCC scam. As one executive from one of the majors said, “It’s revenue negative for us”. Seeing as the two biggest card players are beholden to provide open access to their schemes they have allowed low-profile DCC middlemen such as Global Blue to interpose themselves in the payments system and do deals with the merchants.
The merchants, such as hotel groups, get a cut of the higher customer charges so they have an incentive to refrain from informing the customer. The regional head for one of the card companies recounted his own experience recently of staying at a hotel in Beijing, paying in DCC and then asking the hotel to back-out the transaction. He discovered the charge would have been an extra 7 per cent.
“The merchant gets into it because it increases margins,” he said. On the record, Visa declined to comment as it was subject to court proceedings (in the US). Mastercard was at pains to point out that it did not provide a DCC service.
“DCC is a service offered by merchants (which is usually facilitated through their acquirer or a third party service provider) which allows cardholders to choose to pay in the cardholder’s home currency at the point of interaction with that merchant.”