Multi-Currency processing v’s Dynamic Currency Conversion - what's best and why?

Exploring the benefits and problems associated with DCC and MCP

Author: David Drever
Date: 26 Mar 2020

Multi-currency processing v’s Dynamic Currency Conversion – what’s best and why?

Today, ecommerce is truly global, with up to 30% of total ecommerce sales being cross border. For 2020, total cross-border sales are expected to rise to a total of $994 billion. 
The internet has allowed purchases to be made from wherever you are around the globe. Therefore, as ecommerce becomes more borderless, so is the way we pay. How we pay has become more and more complex but also vital to merchants. 

With continually fluctuating foreign exchange rates, pricing can be confusing for consumers trying to make a purchase, especially in a foreign currency. Research shows that shopping cart abandonment rates when purchasing from a foreign website without having the ability to pay in your own currency, are as high as 70%. Enabling customers to pay in their own currency can reduce this by up to 50%. The key to success for a merchant is to ensure they offer shoppers the ability to pay in their own local currency whilst guaranteeing they mitigate any risk that can arise due to the volatility of foreign exchange. 

The cost of selling globally

Once you move outside Europe where card processing fees are heavily controlled, the cost of processing international cards can grow exponentially, with some currencies and card types costing a merchant well over 3%.  Often, this alone can put merchants off selling internationally as this erodes margins significantly, especially as foreign exchange rates move constantly - even during the time period between accepting a payment and receiving settlement from the acquirer.

How can merchants offer local currency-based payments?

The two options for merchants are dynamic currency conversion (DCC) and multi-currency pricing (MCP). 

Dynamic Currency Pricing:

When a merchant adds DCC to its payment page, they are effectively enabling shoppers to either pay in the original pricing currency displayed, or in the billing currency of their own card. If the customer’s card currency is accepted by the merchant, then a choice of these two payment currencies is offered on the payment page. This choice is referred to as dynamic, because a DCC offer is not made to the customer until they have entered card payment details, meaning that their card currency can be identified. 

DCC is regulated by Visa and Mastercard, and its only available when the customer selects those payment methods. Merchants who offer DCC enjoy the benefits of an additional ancillary revenue stream without increasing prices, because revenue is earned on the FX margin, which would otherwise be earned by the customer’s card issuing bank. DCC is convenient to the shopper because they can view and approve the final payment amount in their own currency at the time of purchase, without having to wait to see the final transaction amount on their statement (that is determined by the exchange rate used by their issuing bank). 

The problems with Dynamic Currency Conversion:

The idea behind dynamic currency conversion is simple, however the main issue is that the actual costs may not be disclosed to shoppers up front. Saying that dynamic currency conversion is convenient is disingenuous. It’s simply another way for banks (and merchants) to be encouraged to add additional fees onto unsuspecting shoppers. Whilst shoppers may be attracted by the certainty of understanding the actual cost up front, the option is usually offered at a derisory exchange rate. DCC margin, typically 5-6% is split between the merchant and the DCC provider. This can be compared with the typical 3% charged to a cardholder as a foreign card usage fee by its card issuer, which let’s face it is still ridiculous!

A DCC provider offering merchants an incentive to add extra fees to unsuspecting shoppers is not particularly ethical is it? It would surely be much fairer to facilitate cross border trade by reducing fees for shoppers and merchants and move some of those ridiculous profit margins away from banks, card schemes and payment processors who’ve had it too good for too long! Visa and Mastercard demands that cardholders must be told the amount in the local currency, the billing currency and the conversion rate - but this can be painfully hard to monitor. Because consumers are usually unaware that they’ve been ripped off and bank credit card issuers and the payment networks have substantially insulated their cross-border fees from DCC, it’s been easy for the industry to turn a blind eye to DCC. This means that there are still major problems. Full disclosure would kill the DCC industry because let’s face it, no consumer would knowingly pay 5% or more, just to see a payment in his home currency. 

Multi-currency Pricing:

Multi-currency Pricing (MCP) is used when a merchant offers its goods or services to the shopper in multiple currencies, before the payment process begins. This choice of payment currency may be offered at any time during the order or booking process. Offering a choice of currencies earlier in the order/booking process can help the customer to make the decision to purchase and reduce the chances of shopping cart abandonment, as they can view alternative prices in their own currency. 

The problems with Multi Currency Pricing

Websites need to be built to display prices in more than one currency, which adds some complexity to a build. This choice of currency made by the shopper, can be determined in a number of ways, such as when arriving on the website, or via IP address recognition. Secondly, a merchant needs to decide if it wants the processed currencies to be converted by its acquirer to a single currency, or accept more, which leaves them open to FX risk. This risk can reduce or in some cases completely remove the benefit of selling internationally. In all cases, the cost of processing the international transactions, coupled with exchange rate risk and the focus required to manage and maintain multiple accounts can put merchants off this method of pricing and processing.

So, how does FXCPay help with these challenges?

The FXCPay solution is an alternative multi-currency offering, that removes two of the key concerns above - cost and risk.  Merchants can accept payments in multiple currencies at a fixed price of 1% (including all card processing fees), whilst removing the FX risk entirely. Yes, that’s 1% for the total transaction fee. Merchants choose the settlement currency and they will always know exactly the amount that they will be settled, even before a transaction is processed. FXCPay simplifies pricing, reporting and reconciliation so that they can concentrate on what they do best, growing their business - rather than worry about risk and cost. 


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