Dynamic Currency Conversion Payment Options Specifically Harm Less Financially Literate Customers

Abstract

International customers are increasingly exposed to dynamic currency conversion, that is, the option during checkout to proceed with a transaction in the home currency instead of a foreign currency. As conversion markups can be sizable, it is relevant to gain insight into how distinct groups of customers react at point-of-sale terminals to different markups and different ways of presenting information. The authors build on research on effort–accuracy trade-offs to theorize how international customers with different levels of financial literacy react to conversion markups, different degrees of information transparency, and default settings. The authors find that financial literacy moderates the effect of markups, information, and defaults, and they design an intervention that eradicates the effect of financial literacy on dynamic currency conversion usage. The results contribute to our understanding of how customers with different levels of financial literacy respond to conversion markups, to public policies that are intended to protect customer interests, and to evil defaults used by commercial parties that seek to steer customers to noneconomical options. The authors discuss the implications of these findings for public policy making and research.