paying local currency vs Euro

Adelie

Was in Switzerland recently for a business trip and when paying by card for the hotel, the receptionist instructed me to select to pay in Euros rather than local currency. I did the opposite since as far as I know that's almost always cheaper. When he noticed what I'd done, he explained to me there is some "new system" where it's cheaper to select your own currency i.e. Euro.

I've never heard of this and didn't believe him, just wondering is there any truth to it?

Compton

Never heard of it either, generally it's better to pay in the local currency.

Victor

It is down to the way the credit card companies calculate the exchange rate and transaction fees.

If I'm correct, it is cheapest for the consumer to pay in the currency of the country they are in.

Traders are incentivised (paid) to encourage people to pay in their home currency. It seems the receptionist got it the wrong way around.

If I am right.

3DataModem

Victor wrote: »

It is down to the way the credit card companies calculate the exchange rate and transaction fees.

If I'm correct, it is cheapest for the consumer to pay in the currency of the country they are in.

Traders are incentivised (paid) to encourage people to pay in their home currency. It seems the receptionist got it the wrong way around.

If I am right.

Not quite.

With some merchants you can choose to pay in local currency or card currency.

Whether the deal is good is depending on what rate your card issuer gives on foreign exchange transactions.

Usually, It is in the interest of the merchant to have you pay in your card currency, as they earn part of the FX margin.

Jim2007

At this stage almost all Swiss businesses operate in a dual currency mode, it does not actually matter to them which you choose, they will still end with the same value - if you choose Euro, your card will be charged like it was coming from another Euro country, where as if you choose CHF, it will be charged as if it came from a none Euro country.

Which you choose is entirely dependent on the commissions charged by your card company. I don't know about Irish cards, but for mainland Europe, it is usually cheaper to select Euros.

P. Breathnach

The procedure where you are given the option of paying in either the local currency or your home currency is known as Dynamic Currency Conversion. If you accept the home currency option, the charge in Swiss Francs, or Sterling, or US Dollars is converted to Euros - at a rate that is very much to your disadvantage. It's such a bad rate that you can fairly describe it as a rip-off.

The trader is in on the act, and is incentivised by a commission scheme.

Most Credit Card operators apply fairly reasonable exchange rates when you charge things in the local currency.

The scam/scheme was devised in Ireland by Fexco.

Jim2007

I can't comment on the situation in Ireland, only that we do not get such commissions or incentives here. But then again, credit card usage is very low here - mail order is often COD or PostGiro 30 days after invoice, the rest is cash or bank transfer (we do not have cheques).

Almost all credit cards require the outstanding balance to be paid in full each month. The card companies main sources of income are card fees and merchant fees which are very high. As a result outside the tourist trade, it is not at all uncommon to find companies that do not offer credit card facilities, although they will be happy to accept payment in Euros.

coylemj

Whatever rate the merchant offers will never be as good as the FX rate applied to the transaction by the CC company. I can't envisage any situation where it's to the cardholders's advantage to pay in anything other than the merchant's local currency.

How can a hotel or restaurant offer a better FX rate than Visa or Mastercard who are processing billions of euros/dollars/pounds worth of transactions daily?

Always pay in the local currency and leave the conversion to the CC company, that's my policy every time.

Jim2007

coylemj wrote: »

Always pay in the local currency and leave the conversion to the CC company, that's my policy every time.

As I said, I don't know how Irish credit cards are recharged, but most mainland European customers want the Euro option. One assumes that every customer knows what is in their own best interests.

coylemj

Jim2007 wrote: »

As I said, I don't know how Irish credit cards are recharged, but most mainland European customers want the Euro option. One assumes that every customer knows what is in their own best interests.

For non-Euro transactions, what appears on your Irish CC bill is typically 1.5% above interbank.

P. Breathnach

Here is how merchants in Switzerland are incentivised to promote DCC. There is money in it for them: https://www.six-payment-services.com/EN/cashless-payments/added-value-services/dcc/Pages/dcc.aspx?country=CH

The best exchange rate guarantee is fantastic. It amounts to saying that we won't rip you off more than any other service running the same scam.

3DataModem

coylemj wrote: »

Whatever rate the merchant offers will never be as good as the FX rate applied to the transaction by the CC company. I can't envisage any situation where it's to the cardholders's advantage to pay in anything other than the merchant's local currency.

How can a hotel or restaurant offer a better FX rate than Visa or Mastercard who are processing billions of euros/dollars/pounds worth of transactions daily?

Always pay in the local currency and leave the conversion to the CC company, that's my policy every time.

Your info is out of date.

Many CC issuers charge 1.5 to 2.0 percent ... the rate is generally not set by VISA / MasterCard, but by the individual card issuers. Merchants can set their FX rate a lot lower - even if using DCC.

The merchants I work for charge 0.5% and enable processing in local. So taking your issuer rate is not always best.