How Double Currency Conversion Works and How to Avoid Paying Extra Abroad

When you pay with a Ukrainian bank card in a shop in Poland or withdraw cash from an ATM in Turkey, currency conversion may be required. In some cases, the payment process may involve more than one conversion stage. Separately, the payment terminal or ATM may offer DCC — an immediate conversion into your card's currency. Let's explore where additional costs can arise and how to avoid them.

Importantly, DCC and double currency conversion are not the same thing. DCC is a specific service that converts a transaction into your card's currency, while double conversion may result from the processing route of a particular payment.

The easiest way to explain double currency conversion is through the currency conversion chain. Imagine you have a hryvnia-denominated card and buy a coffee in Warsaw for 20 Polish zlotys. The transaction currency is PLN, while your card's currency is UAH. When the transaction currency differs from the account currency, conversion is usually required.

In the simplest scenario, the transaction currency is converted into the card's currency. The payment network's exchange rate may be used, while the bank may also apply its own exchange rate or charge a fee according to its tariffs. An additional conversion may occur depending on the transaction's processing route and the bank's rules. However, simply paying in a foreign currency does not necessarily mean double conversion will take place. Visa, for example, has its own currency conversion rules, while the bank may additionally apply its own exchange rate or fees. Mastercard explicitly warns that banks may not use Mastercard's exchange rate and may charge additional fees.

An additional conversion stage may arise depending on the payment processing route and the card's terms and conditions. However, paying in a foreign currency does not automatically result in double conversion.

What double currency conversion means: every additional exchange may affect the final amount through the exchange rate or an additional fee.

Let's return to that 20-zloty coffee and consider two scenarios.

The terminal processes a transaction for 20 PLN. The conversion then takes place according to the rules of the payment network and the issuing bank. The bank may also apply its own exchange rate or charge a fee if its tariffs provide for this. Your bank statement shows a single debit.

For example, the terminal offers you the option of paying 20 PLN or an equivalent amount in Ukrainian hryvnias. This may be DCC: the conversion provider converts the amount using its own exchange rate, which may include an additional markup. If you decline DCC and choose PLN, the conversion for your hryvnia-denominated card will be carried out according to the card's terms and conditions.

For a customer, standard currency conversion means converting the transaction amount into the account currency. In other words, the transaction currency is converted into the currency of your account. The conversion may use the payment network's exchange rate or another rate specified in the card's terms and conditions. The bank may also charge additional fees. As a result, the actual amount debited may differ from an estimated calculation. 

Double currency conversion, on the other hand, involves two or more currency exchanges. Each additional conversion stage may affect the final amount if a less favourable exchange rate or an additional fee is applied. 

Here's a simple analogy: you could exchange hryvnias directly for zlotys at a currency exchange office, or first exchange hryvnias for US dollars and then dollars for zlotys. The second option may prove more expensive because different exchange rates or fees can apply at each stage.

DCC stands for Dynamic Currency Conversion. It is a service that allows a payment terminal or ATM to offer you the option of paying in your card's currency rather than the local currency.

It is important not to confuse two different processes. Double currency conversion can occur without DCC, simply because of the currencies involved in settlements between banks. DCC, meanwhile, is a service that may be offered by a merchant or ATM operator through its acquiring bank or conversion service provider. The customer must be given a clear choice and agree to the conversion before it is applied.

How DCC works:

1. The terminal reads your card and identifies the account currency.
2. The system offers to process the purchase directly in your card's currency at an exchange rate displayed on the screen.
3. If you accept DCC, the purchase amount is converted into your card's currency using the exchange rate offered by the service provider. The subsequent processing of the transaction depends on the payment route. 

The reason for additional costs is straightforward: the final amount may be affected by the exchange rate, a markup or a fee. With DCC, the exchange rate is set by the conversion service provider. Other transaction costs may depend on the tariffs of the bank that issued your card.

For a small purchase, the difference may be insignificant. However, the larger the transaction and the more payments you make during your trip, the greater the potential impact of an unfavourable exchange rate or additional fees.

You should also be particularly careful when using ATMs. DCC may be offered when withdrawing cash, and fees charged by your bank or the ATM operator may apply in addition to the currency conversion rate.

The rule I follow is simple: always choose the currency of the country you are visiting.

• Paying in Poland? Choose PLN.
• In Turkey? Choose TRY.
• In eurozone countries? Choose EUR.
• Withdrawing cash from an ATM? The same rule applies: choose the local currency.

This way, you avoid accepting DCC and leave the conversion to your bank and/or payment network according to your card's terms and conditions.

There is another way to optimise your spending.

If you travel abroad frequently, it may make sense to get a card denominated in the currency you use most often.

When the transaction currency matches the account currency, conversion between those currencies is unnecessary, although other fees may still apply.

The main answer to the question of how to avoid double currency conversion may sound obvious, but it works: carefully read the payment terminal's screen before confirming a transaction.

Here's what to do:

1. When the terminal offers two amounts, choose the one in the local currency. If a terminal abroad offers to process your payment directly in hryvnias, this usually indicates a DCC offer.
2. If the cashier asks which currency you would like to pay in, choose the local currency. Do not automatically accept the option that appears more convenient.
3. At an ATM, look for options such as "Continue without conversion" or "Decline ATM exchange rate". Button labels vary, so read carefully what you are confirming. Visa explicitly recommends declining a conversion offer if the necessary information is not displayed or you feel pressured.
4. Check your receipt immediately. If it shows an amount in hryvnias together with the exchange rate from the local currency, DCC was most likely applied.
5. If DCC was applied without your consent, you have grounds to contact your bank, as payment network rules require customers to be given a voluntary choice.

Unfortunately, there is no single setting that allows you to disable double currency conversion for every transaction.

However, you can control some of the costs by declining DCC when it is offered by a terminal or ATM, choosing the local currency and checking your card's tariffs in advance.

Here's what you can do:

• Choose the local currency whenever a payment terminal or ATM offers a currency choice.
• Choose a card that matches your spending currency. If the currency of the account being debited matches the purchase currency, no conversion between those currencies is required. However, other fees specified in the bank's tariffs may still apply.
• Check your bank's tariffs. Find out which exchange rate is used for conversion, whether foreign currency transaction fees apply and whether there are any limits.

The exact conversion route used for a transaction depends on the payment network and the terms and conditions of the particular card.

That is why it is worth checking your bank's exchange rates and fees for international transactions before travelling.

Here is a short checklist I recommend keeping in mind:

1. Check your card's currency and account currency before travelling.
2. Ask your bank about the exchange rate and fees for transactions abroad.
3. Choose the local transaction currency if the payment terminal or ATM offers conversion into your card's currency.
4. Do not automatically accept DCC, even if it seems more convenient or quicker.
5. Check the amount displayed on the screen before confirming the transaction, not afterwards.
6. Keep your receipts and review your bank statements. This will help you spot any differences between the exchange rate shown and the rate actually applied.

A few seconds of attention at the payment terminal could save you a considerable amount of money during your trip.