Highlights of our Research Study: Strong Global Growth Potential for DCC

Recently we carried out a material research project in conjunction with the Financial Services Innovation Centre (FSIC) at University College Cork (UCC).  Our aim was to examine the global market for Dynamic Currency Conversion (DCC), to talk with those involved in the various stages of the supply chain and to look at the potential for this service in the years ahead.  Our research also looked at Multi-Currency Processing (MCP), a merchant re-pricing mechanism focused on the eCommerce market allowing the merchant to market and price in local currency.

I’ve blogged about this subject before, outlining the mechanism and benefits of DCC (in September and November 2013). In fact this is fast becoming a specialist area for us -  we see massive potential and this piece of research clearly indicates the exponential growth opportunities for DCC over the next 5 to 10 years.

The following factors are fuelling this growth:

• The increase in card volumes and transactions
• Growth in e-commerce
• Growth in global travel and tourism
• Global increase in business spending
• The emergence of new transaction channels
• Further customer adoption of DCC
• Further lifting of scheme restrictions 

Card usage is increasing globally with projected card transaction volumes to reach US$21.9tn by 2015.  Similarly e-commerce spend is expected to reach US$2tn by 2016.  There are now 2 billion people online today with mobile users projected to surpass desktop internet users by late 2014.  In parallel, global and business travel is on the rise, with many of the large markets like India and China set to experience double-digit growth in inward business travel over the next four years.*

DCC offers a simplified process with a guaranteed rate of exchange.  Customers have the option to pay securely in their home currency at POS when travelling or online, with price and cost certainty. All of this leads to a more convenient and positive experience.

Although many scheme restrictions are being removed and regulatory pressure is decreasing, there are still issues affecting DCC on a local level.  For example, it acts as a deterrent for cardholders when card issuers actively decline DCC transactions or apply cross border fees to any additional transaction fees.  Likewise if DCC exchange rates are prohibitive, cardholders are less likely to opt to use the service.

There are multiple DCC operators in the market, each with different operating models according to their business type and geography. The large players include WorldPay, Barclaycard and Travelex.  There are also a number of Irish players leading in this space such as Fexco, Fintrax and Monex.

Whilst there are many players in this industry, our research shows a distinct lack of innovation amongst them.  In reality, the service is largely commoditized across all the service providers leaving untapped potential for those that enhance their product offering.

There are unique challenges faced by each of the parties in the DCC process.  Amongst cardholders, DCC is poorly understood - excessive margins on transactions is giving this product a bad name.  Equally, many merchants fail to understand the revenue potential of DCC resulting in poor staff training as necessary resources are not invested.  For the acquirers, long lead times associated with implementing new merchants can again hinder progress.  Meanwhile the market for DCC/MCP processors is highly fragmented with numerous players operating across several tiers, all of which are not subjected to regulation and tend to work on their individual efforts in an uncoordinated manner.

However, despite these various challenges, there is still a clear strategic rationale for entering this market. The global market for DCC/MCP is underpenetrated and underserviced.  It is also relatively fragmented with medium levels of competition. Existing players and new entrants alike can capitalize on this, especially those who adopt an open, forward-thinking and innovative approach. 

We will continue to evaluate the DCC marketplace over the coming months, and hope to share more research with you.  For now, this gives a clear summary of the positives for the DCC industry and strongly indicates the mass potential of this service.

To discuss any of this research, or any other payment related issues, you can contact me on kevin@colthurst.ie or + 35386 2319 484

* Nielsen Report Issue 983, Forrester e-commerce research, Global Business Travel Association (GBTA) and Morgan Stanley .