I’m going to start today’s post with a scenario:
A couple from the U.S. travel to Mexico for vacation. They go to an ATM together and use their debit cards, both issued by the same U.S. bank, to withdraw $8,000 pesos. When they check their bank statement, they learn that one of them ended up paying more for the same amount of pesos.
So, how is this possible?
Simple. The one who paid more let the ATM operator handle the conversion from pesos to dollars, a practice known as dynamic currency conversion (DCC), while the other one declined the offer and let their bank do it.
Understanding Dynamic Currency Conversion (DCC)
When you use your debit or credit card in a foreign country, you may not immediately know the exchange rate that your card provider will give you until you check your statement.
With DCC, the ATM operator offers to handle the conversion for you and tells you up front what the exchange rate will be. That may sound good, but they aren’t doing this out of the kindness of their hearts. This convenience comes with a cost, normally with a percentage mark up, and rarely works out to the benefit of the customer.
How to Avoid It
You have the right to decline the DCC offer and process the transaction normally, but many people don’t know that and just hit accept.
Below is a picture of a DCC offer at an ATM operated by HSBC. Notice the 5.5% mark-up:
Below is an example from an ATM operated by Santander. They charge a 5% mark-up:
Let’s Wrap This Up
Tourists aren’t the only people who fall for this one. Our friend who is originally from the U.S., decided to take advantage of the great exchange rate right now and take some pesos out of an ATM in Mexico using his U.S. debit card. He didn’t do as well as he hoped because he accepted the DCC offer.
Our friend has been using ATMs in Mexico for years but this is the first time that he had ever encountered a DCC offer. The reason is because his debit card is a Visa and on April 13, 2019, Visa changed their worldwide policy to allow ATM operators to offer DCC to their cardholders.
By the way, Mastercard has allowed it for quite some time now.
So, even if you’re a seasoned veteran at using foreign ATMs, if you’re using a Visa debit or credit card, you might want to take a closer look at the screen before hitting accept.
Before I end this post, I want to thank one of our readers, Mark Emmer, for visiting different ATMs in the area and sending us pics of the DCC offers. Thanks, Mark.