We'll tell you when the ATM tricked you

Kristo Käärmann
22.09.19
3 minute read

When ATMs and checkout terminals abroad offer to make the conversion, they always intend to profit from the bad exchange rate they use. Save by always choosing the local currency. In the US choose USD, in Eurozone EUR, in Thailand choose to be charged in Baht and so on. Never let the ATM or the checkout terminal do the conversion for you.

With your traditional bank's card abroad, you used to have a choice between two bad options. Either let the terminal do the conversion at the bad exchange rate they give you, or let your bank do the conversion at the bad exchange rate they choose. In both cases you may also be hit by international usage fees by your bank in addition to the bad exchange rate.

That's where the TransferWise debit card comes in - it uses the right currency if you already have it on your borderless account, or if you don't, then it auto-converts at the real exchange rates - same as you see as Reuters, with our famously low and transparent fees.

We thought that the people who order the TransferWise card, are knowledgeable and less likely to fall for the dynamic currency conversion (DCC) trap. We analysed the card transaction data and discovered that our users still fall into that trap 1000 times every day.

chart

Our analysis showed that for transactions larger than £30 about 75% of the DCC transactions are cash withdrawals and 25% are at checkout terminals (POS) at shops. There's a lot of similar conversion scam happening on ecommerce sites - most airlines, ebay, even amazon will try to screw you, offering to convert to your card currency. Unfortunately it isn't possible for us to identify which transactions involved DCC online. We see that Portugal, Italy, Spain, Greece and Germany had the most DCC in the Eurozone, followed by Thailand and the US.

How bad is it?

We know that DCC will always screw you, but by how much? Turns out the markup varies wildly. The card issuer (us) don't actually see what you're charged in local currency, so we had to get clever.

  1. We figured that the ATMs always issue paper bills, therefore the local currency has to be a certain denomination - e.g. a multiple of 10 EUR. So we looked at the charges in GBP on our UK issued cards, which would roughly match 100 EUR withdrawals abroad.

  2. We also know that some ATMs charge a fixed fee for international cards. We're seeing that on the same transaction where the user isn't selecting ATM - e.g we would see lots of 102.50 EUR charges at a certain ATM operator. We then removed that fee from the calculation.

When the results came in we were really surprised that the average is around 8%. Seriously. We looked at the ATM operators, who had the most DCC transactions in the Eurozone.

ATM operatorAverage markup
Sabadell3.5%
Santander8%
Cashzone13%

In fact to test the new notification, I walked out of our office to a cash machine on the corner of Great Eastern and Liverpool St in Shoreditch, voluntarily chose DCC and was charged 2.99 GBP + 12.5% markup hidden in the exchange rate.

ATM

Solution

We can't block DCC on our cards. In fact we have so far unsuccessfully requested this to be done at Scheme level from MasterCard. So we cannot practically help our customers avoid it. But we certainly can help our cardholders make this mistake only once. Now, when you use your card abroad and get conned into DCC - at least you'll know it. You'll get this push notification together, which links to a FAQ about the practice.

notification

We only send this notification once per day and only if the savings amount is substantial enough.

PS! This was a fun feature project for me to build, under the supervision of our debit card experience team. I wrote here about what's technically involved in making such a feature on top of the TransferWise infrastructure.

TransferWise is the smart, new way to send money abroad.

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