What is a Cash Conversion Fee?

A business’s cash conversion cycle is an important metric because it helps to determine its liquidity. A shorter cash conversion cycle means that a business is able to pay its invoices quickly and invest in its growth. 문화상품권매입

When making a purchase or ATM withdrawal with your credit card in a different currency, you may incur a currency conversion fee. These fees are levied by your credit card payment processor or ATM network (such as Visa or MasterCard).

What is a Currency Conversion Fee?

A currency conversion fee, also known as a foreign transaction fee, is a charge that some credit card and debit cards incur when used abroad. It’s also one of the hidden fees that many people don’t realize they are paying until it’s too late.

These fees are often added through a process called Dynamic Currency Conversion, or DCC for short. DCC is a service that allows a merchant to offer customers the option to see their purchase price in their home currency at the point of sale.

This is typically done in order to make it easier for customers to understand what they are being charged for a product or service, and can be beneficial when it comes to making international transactions. However, DCC is typically more expensive than simply letting a customer’s credit card payment network do the work and showing them the transaction amount in dollars. This is because DCC services are usually set at higher exchange rates than those provided by the payment networks.

How is a Currency Conversion Fee Calculated?

When a bank or currency exchange company converts currencies, they mark up the market rate to make money. This is how they compensate themselves for the work involved.

Some merchants offer Dynamic Currency Conversion (DCC) to let customers see their purchases in their home currency at the point of sale, instead of waiting until they get their credit card bill. This service can be expensive, though, since it uses a less favorable exchange rate and tacks on extra fees.

A DCC fee is separate from a foreign transaction fee, which can be charged by your credit or debit card network when you use your card to buy something in a foreign country. According to a 2016 study by NerdWallet, these networks charge a fee of about 1%. However, many credit card issuers waive this fee for their customers. Keeping track of all these fees when you travel abroad can be a hassle, but SAP Concur makes it easy to keep expenses organized and reimbursed correctly.

What is the Meaning of a Currency Conversion Fee?

A currency conversion fee is a charge imposed by financial institutions when they convert one type of currency into another. It covers the cost of buying and selling currencies at different rates, and it also allows the institution to make a profit from the transaction.

This fee is not to be confused with a foreign transaction fee, which is a fee charged by credit card networks (like Visa or MasterCard) and/or the bank that issues your credit card. These fees are often included in the total foreign transaction fee listed on your credit card statement.

Merchants are required to ask you if they can use DCC before charging your account, and you have the option to decline it. If you do, your credit card network will handle the currency conversion, and the rate they apply is usually much better than the DCC rate.

It’s important to know about these fees if you travel overseas and shop online from retailers that process payments in a different currency. Otherwise, you might end up paying more than you intend to due to these hidden charges.

How to Avoid a Currency Conversion Fee

Despite the many things that can trigger post-vacation blues—a groaning inbox; sand in your clothes; a busted phone that destroyed your photos—the worst surprise may be hidden in your credit card bill. Credit card payment networks and your bank charge a currency conversion fee when you swipe your card abroad, even when the purchase price is listed in the local currency.

The fee is a markup over the currency-exchange rate charged by the card transaction processors used by Visa and MasterCard. Some card issuers, such as Capital One 360, are eliminating foreign transaction fees altogether.

To avoid a DCC, ask to pay in the local currency or use an app that provides real-time pricing for your purchases. If merchants or ATM operators offer DCC, make sure they ask you if you want to use it and explain the costs. A 2016 NerdWallet study found that DCC is usually more expensive than letting the card payment network do the conversion and tack on a foreign transaction fee, too.