How Dynamic currency conversion ( DCC ) Works on POS

 𝐇𝐞𝐫𝐞’𝐬 𝐚𝐧 O𝐯𝐞𝐫𝐯𝐢𝐞𝐰 𝐨𝐟 H𝐨𝐰 𝐃𝐂𝐂 W𝐨𝐫𝐤𝐬 𝐨𝐧 𝐏𝐎𝐒 T𝐞𝐫𝐦𝐢𝐧𝐚𝐥𝐬.

This model has the bank performing the processing of DCC transactions, with no treasury management required between the DCC provider and the bank.

The terminal will use a local BIN ranges to determine if the card is foreign and potentially eligible for DCC. When identified, the terminal will send a rate lookup request to the DCC provider. The DCC provider will perform a DCC eligibility check and respond with either the DCC rate information or an indication that the card is not eligible for the service. The terminal will then offer the DCC currency to the cardholder for their choice. 

Once the DCC choice has been made the terminal will perform authorization on the transaction. The DCC and non-DCC authorizations will be performed by the bank using their existing BIN and ICA.

At the end of the day, the merchant sends a bath of approved transactions to the bank. The bank submits the transactions to the card schemes for clearing. The issuing banks perform reconciliation and transfer the funds to the acquirer which will then settle the merchant the equivalent funds in their domestic currency. 

How does an issuer know if a transaction was processed using DCC?

Let’s say I’m a Pak cardholder in the UAE, and I want to make a purchase using my Mastercard. 

If I’m offered DCC, the transaction request message will include a DCC indicator sent to my issuing bank (in the PAK).

This indicator shows whether DCC was offered and if I accepted it or if I declined it.

Now, in addition to the DCC indicator, there are key fields the issuer looks at to validate the transaction:

- DE 43, subfield 3: This tells the issuer the merchant's country code.

- DE 49: This is the transaction currency.

- DE 51: This indicates the cardholder’s billing currency.

Let’s say I accepted the DCC offer. In this scenario:

- DE 43 will confirm the merchant is located in the UAE.

- DE 49 will show PKR (586).

- DE 51 will also show PKR (586).

This tells my issuer that I opted to process the transaction in DCC even though the purchase was made overseas.

Now, if I declined the DCC offer, the data would look different:

- DE 43 would still show the merchant is in the UAE.

- DE 49, the transaction currency, would show the local currency AED (784).

- DE 51, the billing currency, would remain PKR (586).

So, this difference in the fields lets the issuer know if I was offered DCC, accepted or declined it and how the transaction was processed.

𝐃𝐂𝐂 𝐅𝐥𝐨𝐰: 𝐇𝐨𝐰 𝐅𝐮𝐧𝐝𝐬 𝐌𝐨𝐯𝐞 𝐁𝐞𝐭𝐰𝐞𝐞𝐧 𝐏𝐚𝐫𝐭𝐢𝐞𝐬

How the transaction is processed and settled from the cardholder’s and merchant’s perspective. In this flow: A- There is no treasury management B- The merchant and acquirer are in the UAE C- The acquirer is settled in USD for all foreign transactions D- The cardholder is European E- The DCC markup (profit) is 4% F- Transaction fees are excluded to simplify the flow Transaction Flow: 1- The cardholder is offered DCC for a product priced at AED 250 2- They accept the offer, and the transaction is converted to €67.60 Cardholder's local currency. 3- The acquirer receives authorization response and then sends clearing to card scheme. 4- The scheme debits the issuer with 70.55 USD 5- The card scheme credits $70.55 to acquirer. 6- The acquirer converts $70.55 to AED (their domestic currency), which equals AED 260 7- The acquirer settles the merchant AED 250 and keeps AED 10 as revenue (from the 4% markup) 8- This AED 10 profit is shared between the acquirer, merchant, and DCC provider based on their agreed revenue split.

𝐊𝐄𝐘 𝐃𝐄𝐕𝐄𝐋𝐎𝐏𝐌𝐄𝐍𝐓 𝐀𝐂𝐓𝐈𝐕𝐈𝐓𝐈𝐄𝐒 FOR ACQUIRER:

- POS development to support DCC. This'll includes the rate lookup process, the local BIN file, displaying the DCC offer, handling the additional DCC data in the messages and changes to the receipts.

- Switch development to support DCC. This includes the rate lookup process and handling the additional DCC data in the authorization messages.

- Clearing development to support DCC. This includes handling the correct data during clearing, and reconciling converted amounts correctly.

- Developments to the reporting systems. This includes enhancing the MIS reporting and data analytics. 

- Changes to the operational process. This includes defining the merchant onboarding process with the DCC provider, reporting and reconciliation among all parties.