Ever Noticed DCC Fee in Your Credit Card Statement?

I noticed a new charge in my recent credit card statement. DCC Fee. While the quantum of charge was low, I still had to find how it became applicable.

What is DCC Fee?

DCC stands for Dynamic Currency Conversion fee and this fee is levied in two cases:

  1. For transactions conducted in INR at international locations.
  2. For transactions done in INR with merchants located in India but registered in a foreign nation.

The charges are applicable only if you pay in INR. DCC fee may be applicable for ATM withdrawals abroad too. If you pay in a foreign currency, then the DCC fee will not be applicable.

So, you don’t have to travel abroad for DCC fee to show up in your credit card statement. In my case, it was towards monthly payment for subscription to bulk email service for sending newsletters. The website shows the subscription amount in INR and the debit has always been in INR. Still, the DCC applied. As I understand, this payment fell under bucket (2). INR payment to merchant located in India but registered in a foreign location.

Why now? I have been using the service for a long time but noticed this for the first time. ICICI Bank has started charging DCC fee of 1% from February 2024.

Note: It is the merchant that offers you the option to pay in INR. In case of ATM withdrawal, it is the bank who owns the ATM. As I understand, your card issuing bank has no role to play here. The choice belongs to the merchant. You can decline the offer and submit to pay in the foreign currency (perhaps not for online, but for physical payments abroad).

Should You Pay in INR or Foreign Currency on Your Trips Abroad?

Paying in INR seems more comfortable because it is your currency. Easier to relate to. Plus, DCC appears cost-effective. Your payments in foreign currency (USD or EURO) are subject to Foreign Currency Transaction fee of 3-4%. In contrast, DCC is only 1%. Sounds good, right?

However, DCC does not eliminate Foreign Currency Transaction cost (though it sounds strange). Here is a Reddit thread, which mentions both DCC and the Foreign Currency Transaction Fee were levied for INR transaction at a foreign merchant.

There is an additional and much bigger angle, where your preference to pay in INR may burn a small hole in your pocket. Please understand there may be some gaps in my understanding. If you spot any errors, please highlight in the comments section.

  • If you choose to pay in INR to a merchant abroad or withdraw in INR at an ATM abroad, the merchant (and its bank) or the bank (for ATM withdrawal) can charge a markup for allowing you to pay in your currency (INR) instead of a foreign currency. Your bank has no role to play here in deciding conversion costs or anything. It is all in the hands of the foreign merchant and its partner bank. And this conversion cost can sometimes be atrocious (as mentioned in this Twitter thread).
  • Your bank charges DCC over and above what you pay to the foreign merchant in INR. You may still have to pay Foreign Currency Conversion Cost (shouldn’t be applicable but I can’t ignore this Reddit thread).

Clearly, your eyes shouldn’t light up if the foreign merchant offers you to pay in your currency. You might get scammed in a very legal way. This post from HDFC bank also highlights this issue. Reproducing an excerpt from HDFC bank article below:

It is observed that the exchange rate in DCC payments is much higher than the exchange rate in non-DCC payments. So, while making a DCC payment may seem convenient, it might end up costing you significantly more than a non-DCC payment.

Hence, even if you prefer to pay in INR during your trip abroad, suggest you do a quick mental accounting before you swipe. You would not want to pay Rs 9,123 for an item that costs USD 100 (Current exchange rate is INR 83.42/USD). You can ask the merchant to charge your card in USD.

Had you paid in USD, you would have ended up paying much lower than what you paid in INR, even after foreign currency transaction charge of 3.5-4%. Yes, you do not get a very benign rate from your card issuing bank either, but you wouldn’t expect the cost to exceed 10% (as is the case with the above DCC transaction).

Please understand paying to a retailer abroad is different from paying for subscription service online to an entity registered abroad (while in India). Businesses follow differential pricing for the same service in different geographies. For instance, annual digital subscription to The Economist magazine costs USD 319 for US subscribers. It costs only Rs 9,619 per annum for Indian subscribers. Much cheaper for Indian users. USD 319 X INR 83.4/USD = Rs 26,610. Hence, if you get your subscription in India, you have to pay much less. Yes, your card issuing bank will charge a DCC fee on this payment. But you are still much better off.

You don’t get such concessions from retailers or bank ATMs abroad. You will be charged the full cost. Hence, you have to be aware of the mark-up.

Which currency do you intend to pay during your next trip abroad (if you choose to pay using a credit card at all)?

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