In this guide we will talk about two important payment terms: Dynamic Currency Conversion (DCC) and Multi-Currency Pricing (MCP). We will explain what they mean, how they differ and what the pros and cons of each of them are. And we will use as few TLAs (three-letter acronyms) as possible.

Let’s get started.

What is DCC?

DCC stands for Dynamic Currency Conversion. And to confuse you, DCC is also known as Pay in Your Currency (PYC) and Cardholder Preferred Currency (CPC).

DCC is designed to help international travellers pay for products and services in their own country’s currency. It is a process whereby the amount of a credit card transaction is converted at the point of sale, ATM, or Internet to the currency of the card's country of issue. Currently, this feature is available for Visa and MasterCard networks only.

DCC is mostly offered in cardholder-present environments like retail stores, hotels, and restaurants. And you’ll see why when we explain how it works. Suppose a British customer travels to Japan and wishes to purchase a gift from a local shop. The product is marked up in Japanese Yen.

1. The shopkeeper taps the price in yen onto the payment terminal.
2. The customer inserts their card into the payment terminal.
3. If the cardholder is eligible for the DCC scheme, the payment terminal will offer the choice to pay in the local currency (Japanese Yen) or the customer’s home currency (Great British Pound). GBP will be the DCC amount. The local amount, DCC amount, exchange rate, and fees will all be visible for transparency.
4. The cardholder chooses their currency of choice.
5. The payment terminal confirms that the transaction has been processed and gives out a receipt confirming the customer's currency choice. This will mirror the amount later appearing on the customer's credit card billing statement.

What is MCP?

MCP is a little different to DCC. MCP stands for Multi-Currency Pricing. It is designed to help businesses that serve international customers in cardholder, not present environments such as the internet, mail-order and telephone order. However, it can also be used as a terminal application in card present (point-of-sale or POS) environments (see Q&A below for an explanation of POS).

MCP is a fantastic payment tool for merchants with international clientele. It means that they can price goods and services in various foreign currencies whilst continuing to receive settlement and reporting in their home currency. For example, with MCP, merchants can sell the same item to British customers in Great British Pounds, Republic of Ireland customers in Euros, and Japanese customers in Yen. As with DCP, this feature is available only for Visa and MasterCard networks.

How does MCP work? Suppose a British customer is based in the UK and wishes to purchase a gift from a Japanese online store.  The product is marked up in Japanese Yen.

1. The user is on the merchant’s website and can see prices in yen. They can also see a yen tab on the navigation bar, which, when clicked on, presents the user with a variety of currencies.
2. The user clicks “GBP £” and all prices switch from Yen to GBP.
3. When the user goes to the checkout, they can pay in GBP or a range of other currencies.
4. The user chooses to pay in GBP, which is debited to the cardholder account in GBP, whilst the exact Japanese Yen amount will be credited to the merchant's account.
5. The cardholder is not charged any additional fees for this service.

DCC vs MCP

As you can see, DCC and MCP were created to solve different cardholder and merchant scenarios. DCC is best suited to card-present environments where the cardholder is in a foreign country and would prefer to know the final amount in their country’s currency. DCC enables the merchant to offer an instant comparison so that the cardholder can decide whether to pay in their home currency or the currency of the country where they currently purchase the goods or services.

MCP is best suited to cardholders, not present environments such as the internet, where the cardholder is interested in purchasing goods or services from a merchant operating in a different country. Because the cardholder is likely to be browsing online, they can view prices in their chosen currency from the start of their web shopping experience, not just when they reach the shopping cart.

What DCC and MCP share is that both features are currently only available on the Visa and Mastercard networks.

Pros and cons of DCC for cardholders

Pros

The exchange rate is locked in – Because it is a point-of-sale tool, DCC can lock in the exchange rate at the point of sale. That exchange rate is the current market rate plus a markup for the vendor and/or the service provider. This is unusual because credit card exchange rates aren't normally locked in until a few days after the transaction has been processed.

The exchange rate is offered in real time – When the cardholder opts for DCC, the currency conversion is immediate, and the cardholder knows exactly what they will be charged and what exchange rate they will be paying. This contrasts with credit card companies, who are not required to disclose the exchange rate and, in most cases, don’t.

It is easier to compare prices - Because most people understand their currency better than they would other currencies, comparison shopping is often easier for the buyer.

It is convenient - International travellers are busy. By offering them the option of paying in their home currency, the merchant gives them a familiar home experience of paying in a currency they understand. Business travellers appreciate DCC because it makes submitting business expenses much more straightforward.

It is transparent – Because of how DCC is presented to the customer, there are no surprises when it comes to payment fees or currency conversion rates. Their credit card statement will display the amount they agreed to at the point of sale.

Disadvantages

The markup is not declared – Whilst DCC vendors disclose the exchange rate, they tend not to confirm the markup they use over the current market exchange rate. There are a few reasons for this: the cardholder already sees a fair bit of comparison data when making the decision. That said, the markup isn’t often itemised, and a customer would only know this if they used a currency exchange app when making the DCC purchase decision.

Most card issuers will still apply a transaction fee – It is a misconception that card issuers won’t charge the cardholder a foreign transaction fee if they select the DCC option. This has a double whammy in that most cards charge transaction fees typically calculated as a percentage of the transaction amount. This means the foreign transaction fee may be higher for a DCC purchase than the transaction fee if the credit card issuer’s currency was selected.

The DCC rate may be uncompetitive – Because of how DCC is constructed, opting for DCC will often result in a higher cost to the cardholder. Opponents of DCC argue that the financial benefit to the merchant or their card processor incentivises the merchant to offer DCC even when it would be disadvantageous to the customer. However, to counter this, some companies will offer a best rate guarantee, ensuring that cardholders get the best rate on the day. 

Pros and cons of MCP

Pros

No foreign transaction fees – Typically, cardholders will pay a transaction fee if they buy things online from other countries. This is not the case with an MCP transaction, as the customer pays in their home currency.

Local global – MCP offers merchants the ability to localise websites and, in doing so, expand their reach to other geographical regions. This means that customers are accessing websites from other countries that they wouldn’t usually be interested in.

Providing a valuable service to overseas customers – MCP enables merchants to enhance the customer experience by presenting prices in the user’s home currency. At the same time, it also means that the merchant can continue to receive settlement and reporting in their home currency.

Reducing chargebacks – By providing pricing transparency, the merchant reduces the likelihood that customers will return later to complain about value for money. The MCP rate is fixed as advertised and in the customer’s home currency, which they’re familiar with. This should also reduce the volume of customer service enquiries. That’s good news for the customer and merchants.

Enhancing the online experience - MCP is designed to make it easier for international users to shop wider than their home country. This should improve their online experience and provide a more competitive retail environment.

Increased customer loyalty – Putting the customer at ease with goods and services priced in their home currency will create a smooth buying process, encourage repeat purchasing and enhance customer loyalty.

Market differentiation - Accepting foreign currency payments can give merchants the edge because they are differentiating from the market, or it can put them on an equal footing in international markets. Either way, it extends their reach, enabling their customers to buy in their local currency, which they generally prefer to do.

Reduced cart abandonment – By pricing products in a local currency, you reduce an objection that a customer may otherwise have and decrease your cart abandonment rate. That’s good news for the customer because abandoned carts = time wasted.

Whilst MCP doesn’t offer disadvantages to customers, there are two distinct disadvantages to the merchant:

Currency exchange rate – If an MCP supplier is transferring funds from different currencies in relatively small amounts, then it is likely that you won’t be receiving the most preferential rates of exchange compared to the market rate.

High maintenance fee – Because of the work that your MCP provider needs to do to manage a multi-currency feature in your website, you will likely be paying more for account administration and maintenance.

Given the large number of pros to offering MCP, these cons should pale into insignificance. Another significant advantage for the merchant is the reduced personal admin time. MCP customers receive payments into a multi-currency account, making administration more straightforward and avoiding juggling numerous accounts operating in different currencies.

Key takeaways

• DCC vs MCP - DCC and MCP were created to solve different cardholder and merchant scenarios, although they are currently only available on the Visa and Mastercard networks.
• DCC - Dynamic Currency Conversion (DCC) is mostly offered in card present environments, such as retail stores, hotels, and restaurants. DCC offers international travellers the option of paying for products and services in their own country’s currency vs the currency of the country that they are in. For transparency, the local amount, DCC amount, exchange rate, and fees will all be visible for both options.
• MCP - Multi-Currency Pricing (MCP) is mainly offered in cardholder not present environments such as the internet, mail-order and telephone order. MCP enables merchants from one country to provide international customers the opportunity to pay for goods or services in their local currency.
• DCC has some great pros. The exchange rate is offered in real time and locked in. It makes customer price comparisons easier, and is convenient and transparent. The main disadvantages are that the markup is not usually declared, most card issuers will still apply a transaction fee, and the DCC rate may be uncompetitive.
• MCP has some great advantages. There are typically no foreign transaction fees, customers will consider buying from websites that may previously have been ruled out, and local merchants can operate globally, providing a valuable service to overseas customers. Pricing transparency should reduce chargebacks and cart abandonment, enhance the online experience, and increase customer loyalty.
• MCP offers the merchant two distinct advantages: a relatively low currency exchange rate and a high maintenance fee in lieu of the work that the MCP provider needs to do to manage a multi-currency feature.

FAQs

What is a merchant?

A merchant is a person or company that sells goods or services.

What is a cardholder present environment?

“Cardholder present environment” is a term to describe those scenarios when the cardholder is present when the card is being used. This would include retail stores, hotels, and restaurants.

What is a cardholder not present environment?

“Cardholder not present environments” is a term to describe those scenarios when the cardholder is not present when the card is being used. This would include environments such as the internet, mail-order and telephone-order.

What is a POS environment?

In retail terminology, POS stands for ‘point of sale’ and it is where a customer executes the payment for goods or services. In cardholder terminology it normally relates to a point-of-sale terminal used by a retailer when taking a debit or credit card transaction.