Brazil Blocks Dynamic Currency Conversion; Is It a Big Deal?

Sept. 16, 2013

In what has been positioned as a backlash against opaque fees, several Brazilian banks are no longer permitting transactions that use Dynamic Currency Conversion (DCC). Itaú and Bradesco, in accordance with a recommendation from the Association of Brazilian Credit Cards and Services Companies (Abecs), as of Sept. 13 no longer allow DCC on purchases made with credit cards they issue. Whether the news is a big shakeup for e-commerce merchants selling into Brazil remains unclear.

Also known as a multicurrency transaction, the practice is becoming more common when travelers use their credit cards abroad and is used heavily in cross-border e-commerce purchases. As part of a merchant’s payment gateway, DCC automatically converts the price of purchases from an international currency to a local one at the time of purchase. Rather than seeing the price and paying in the currency of the seller and not knowing the exchange rate on the price until a credit-card statement arrives, DCC lets an international buyer pay in the shopping cart in his or her local currency.

While proponents of DCC underscore that the ability to view foreign prices in their own currency helps them better understand prices when making purchases on foreign Websites, Abecs’ executive director Ricardo Viera said it has recommended banks not accept multicurrency transactions. Viera said the agency was fielding an increasing number of complaints from Brazilian consumers who made purchases in Brazilian reals but were confused by credit-card statements that showed the purchase in dollars.

Under the moratorium, which two of the biggest Brazilian card issuers are adhering to, Brazilian consumers holding internationally enabled cards from these issuers cannot pay on foreign Websites in Brazilian currency. Sources tell they may still make purchases on those sites, but they will have to pay in the currency of the country in which the site is located (e.g., U.S. dollars for a site located in the U.S.) and the exchange rate will be applied by the issuer according to the credit-card cutoff date rather than by the merchant on the date of purchase.

Some experts have suggested that DCC enables merchants to charge extra fees for currency conversion that banks would not. Confusion like this is why Abecs recommended against the practice in the first place. But, will not being able to pay for products on foreign Websites in reals result in a loss of sales for cross-border e-commerce merchants? The answer to that question is unclear and bears watching in the coming months.

In the short term, sources said this will be an inconvenience for merchants who must turn off DCC only for Brazil. But, will it benefit consumers, or is Brazil simply looking out for its local financial institutions?

Said one international acquiring and processing executive: “At the end of the day, somebody is going to hit [consumers] on the FX rate. It’s more [Abecs] trying to control where that hit’s coming from.”