Paypal and Dynamic Currency Conversion

burningrage on 31/05/2016 - 21:41
Last edited 31/05/2016 - 21:50

Hi everyone,

I want to share about recent experience paying with Paypal on a US purchase. This might be covered elsewhere or many people already know but I am putting it here anyway just in case.

On 27/5/2016, I bought an item from USA for USD 92.01. Oanda.Com says the currency exchange at that time was USD 0.72 per $1 AUD. The notional charge therefore would be $127.80. Paypal used an exchange rate of USD 0.69 per $1 AUD meaning the actual charge was $133.34. At no time did I indicate I want to be billed in AUD.

Incidentally, the spread between Oanda and Paypal was around 4.3% (0.72/0.69 - 1 x 100%). You can say that's a defacto Currency Conversion charge.

Yesterday, I was charged an extra AUD$5.62 for Citibank International Transaction Fee (or otherwise known as Dynamic Currency Conversion - DCC). This is 4.4% of the AUD$127.80. In total, the spread is 8.7%.

Had I chosen Credit Card payment instead of Paypal, the worst I would be charged would be 4.4% once and no DCC.

This means if you pay using Paypal on US Merchants, DCC will be applied as Paypal appears to be assuming you want to be billed in AUD.

Either that, or the way Paypal works is that if you don't have a balance in Paypal, it will use your Credit Card to "top up" your balance first to cover the purchase price and paypal unfortunately, will apply the top up using its own overseas payment processor (triggering DCC) before taking its spread when applying its own currency conversion.

It is not a large mistake but it was nevertheless painful for someone who is trying to be careful to avoid DCC as I have tried by running this forum https://www.ozbargain.com.au/node/225896.

If others are having the same experience, please spread the word. If this didn't happen to you, then it's good and hopefully this can be an experience to others.

Regards

Zz

EDIT: I have found hidden somewhere within paypal that indeed, Paypal has by default turned on DCC. To remove, go to Settings, Pre-Approved Payments, Click Set Available Funding Sources hyperlink in the body of table, then choose your credit card and click Conversion Option, and choose option B (Bill me in the currency listed on the seller's invoice). This will eliminate DCC once and for all.

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Comments

  • zolinger on 01/06/2016 - 02:53

    I wanted to clarify, PP charges its own conversion rate (upmarked market rate) and we also get charged DCC. Whats the point of paying in AUD (apart from anticipated currency volatility?)

    • burningrage on 01/06/2016 - 06:22

      Historically DCC was applied within the context of hotel industries where patrons are given the "convenience" of paying in their own currencies.

      The "benefit" is the exchange rate is disclosed at the time transaction as opposed to traditional FCC where you dont know the exchange rate until it appears in statement.

      Within retailing, DCC used to be a non issue because banks didnt charge DCC before.

      Since 1 April 2016 banks wanted to get a slice of that. If you refer to my link above, citibank was one recently introducing DCC. As the result anyone got hit by DCC would be at least 4.4% worse off than those who dont use DCC.

      In short there is no real benefit other than exchange rate being disclosed upfront.

  • hal9000 on 01/06/2016 - 06:30

    you can actually avoid paypal's conversion rate if you use mastercard credit or debit cards. you then can use the card's own conversion rate directly rather than the paypal's one.

    • burningrage on 01/06/2016 - 08:25

      That is true. As mentioned above, one of the payment methods available were credit cards.

      But sometimes overseas merchants would want to have a copy of your IDs etc (I knew I had to do it when I used to order from Toys N Joys Hawaii). Paypal eliminates that requirement I suppose.

    • MITM on 01/06/2016 - 08:40

      @hal: specifically "MasterCard" ?

      • hal9000 on 01/06/2016 - 11:37

        actually no. you can also do it with aus visa cards. just not indonesian visa cards, apparently.

        • Ughhh on 01/06/2016 - 18:41

          …you can just select to not use paypals exchange rate (which will show you in AUD) and select to be billed in USD and exchange via your bank

  • MITM on 01/06/2016 - 08:39
    +1

    Could you not just use 28Degrees cc or Citibank+ debit card for best exchange rates and no fees ?
    Edit: I see - merchants sometimes require photographic ID like DL.

    • burningrage on 01/06/2016 - 10:26

      You can… but as you said, merchants sometimes require photo ID etc (in my case, Toy'N'Joys Hawaii did that to me).

      But I have included steps above on how to avoid DCC when paying using Paypal so try that….

      Obviously I am still traumatized to try but maybe after Fin year end I might try again. Or even waiting for Cyber Monday.

  • strikerzebra on 01/06/2016 - 10:33

    Cheers, but why can't I edit the conversion uption for my american express card?

    • burningrage on 01/06/2016 - 12:22

      The option should be there. If only I can screenshot and paste it here…

      The hyperlink Conversion Option should be there… unless AMEX is different but unlikely.

  • idjces on 01/06/2016 - 11:47

    There should be a link on the paypal billing page to be charged in the local currency, its easy to miss, i have on a couple occasions.

    Selecting amex as payment wont show the option, amex have some sort of agreement in place there

    • burningrage on 01/06/2016 - 12:23

      Better to go into settings and set it to bill as per Invoice (that is, non DCC) and we won't have to remember.

      • strikerzebra on 01/06/2016 - 14:52

        Where do I change that, can't find it in settings

        • burningrage on 01/06/2016 - 14:57

          Login to Paypal
          On top, there is a gear icon (Settings)
          Click Tab Payment
          Click Pre Approved Payment
          Click Set Available Funding Source (This is within the table - can be hard to find)
          Choose your credit card. Next to your CC number there is a hyperlink Conversion Option. Click that.
          Choose bill me in the currency listed on seller's invoice (option B). Option A is the DCC. Paypal defaults you to that.

          I was told if your credit card is AMEX, then the hyperlink Conversion Option will not show. Is this confirmed?

        • strikerzebra on 01/06/2016 - 15:03

          @burningrage:

          Cheers, I just have to remember to change this option every time I get a new credit card haha.

          Yes I did some reading and amex it won't appear "This setting is not available for American Express cards because Paypal and Amex are set up to always charge in the overseas currency, and Paypal won’t convert the charge for you."

  • Peck on 30/06/2016 - 16:06

    Thanks for sharing all of the info

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