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the case of dynamic currency conversion

A New Regulation to Increase Transparency

Cross-border payments have always been a point of considerable interest and concern for EU banks and the EU payments industry in general. Several different regulations have been put in place over the years, with the latest one created in 2009. A new regulation was proposed by the European Commission in 2018, expanding the scope of cross-border payment rules beyond Member States using the euro.

One Fee to Rule Them All

This new regulation would require all European Union payment service providers to charge the same fees for euro-based cross-border transactions as they do for local currency-based domestic ones. The move, hailed by consumer rights groups, is expected to bring about cheaper transactions in euro for all non-euro countries, thus saving both consumers and businesses up to a billion euro per year. 

Unfavorable for Customers 

Research by several consumer rights organizations makes it clear that there is definitely a case to be made here, since cross-border bank transfers in euro have been shown to range from €1.19 in Poland to €24.03 in Bulgaria. 

The European Consumer Organization (BEUC) performed research in the United Kingdom and discovered that the charge costs caused UK consumers to incur losses of up to £500m per year. BEUC research also showed that choosing the "home currency" option for transactions was a worse deal for the customer 9 times out of 10.


What It Was All About

Under the previous regulation payment service providers could opt-in when it came to using equal fees for domestic and cross-border payments but for the most part they did not take up the option. This was due to PSPs incurring losses when offering cross-border local currency transactions, which is also the reason such transactions are not present in the proposed regulation.

Conversion Rates into the Clear

The new regulation would also provide the additional benefit of preventing the practice of payment service providers compensating for reduced revenue through, from certain consumer experiences, not fully transparent currency conversion rates. Their costs are usually not known to payment service users and could be discerned only by consulting your account statements before and after a transaction and doing some math and conversions of your own. This practice is known as Dynamic Currency Conversion or DCC.


DCC applies to both card purchases and cash withdrawals made abroad; in both cases the payment service provider offers the payer a choice between paying in their domestic currency or local currency.

However, the new regulation would require these payment providers to clearly display the exchange rates offered, as well as to display all reference rates and any additional costs before the payment service user decides to finish the transaction.

This has, however, raised some concerns regarding the technical side of the regulation's implementation, since the exchange rates would need to be displayed not only on mobile devices but also on ATMs. 

Implementation and Transparency

The proposal also calls for the European Banking Authority to draft technical standards that would outline how exactly these transparency rules would be implemented in practice. 

While these standards are being developed and tested, EBA would also provide an interim solution by setting an upper limit on the total charges providers are allowed to offer for currency conversion.

The European Commission proposed January 1, 2019 as the application date of the new regulation, and October 2022 was marked as the date the effectiveness review for the regulation.

This review would also potentially point towards the possibility of extending the regulation to all cross-border payments, including transactions not made in euro.