Tourists warned over exchange rate costs
British holidaymakers are paying hundreds of millions of pounds in unnecessary charges when they use their credit and debit cards overseas.
Shops, restaurants and cash machines are offering tourists the option of paying in pounds rather than the local currency and applying a poor exchange rate if they take up the offer.
This costs UK tourists about £500m a year, analysis for the BBC has found.
The lower rates are equivalent to charging about 6% on each transaction.
But currency trader FairFX found that on some transactions tourists can lose up to 10% by paying in sterling rather than the domestic currency.
The practice of offering a pay-in-sterling option is called dynamic currency conversion.
Most tourists are on their guard against being stung by high prices. What they don't expect is that they could be trapped by the payment system itself.
One of the biggest danger areas at the moment is the Netherlands, so much so that the Dutch consumer organisation, the Consumentenbond, is urging visitors to take extra care.
"Let me warn those that are being offered to pay by card and the shop owner says: 'Would you like me to give you the exchange rate of what it will be in pounds' - don't do it", says Sandra de Jong, who speaks for the group.
A high proportion of shops and bars in Amsterdam, the ones popular with tourists, offer dynamic currency conversion.
Dynamic currency conversion is sold as an extra convenience. But in practice, many British tourists are utterly non-plussed by the choice they are being offered.
"To be honest I find it very confusing," Jim Begg from Belfast told me as he was setting out on a bike tour round the city, "I never know which is the right one to choose, though I know one gives a much better rate."
Ollie, a student from Bristol, told me he was caught out when using a card for hotel bills.
"Initially I chose to pay in pounds because I thought that paying in home currency might be better for some reason, but we ended up paying quite a significant amount more."
Pounds or euros?
At a cheesemonger, once my card went into the payment machine, up popped a choice: a price in euros and a price in pounds.
What happens is that if you buy in euros the transaction goes through a standard route, with the exchange rate set by Mastercard or Visa, although your bank can impose an additional charge.
But if you choose to pay in pounds, your money is changed on the spot by the shop's bank or payment processor. And they decide on the rate.
With the cheese I was buying, that meant a loss of 3.5% compared with the Mastercard rate.
Then, in a bar for lunch, I was offered an exchange rate which hacked a 5% slice out of my money.
And at a cash machine in a shop, the hit if I chose to pay in pounds for a cash withdrawal was nearly 10%. Less than 1.02 euros for each of my pounds, rather than the 1.13 euros available that day via Mastercard.
The lesson is a clear one: it's almost always better to pay in the local currency.
The BBC asked the currency card and foreign exchange provider FairFX to estimate how much people were being charged for dynamic currency conversion, by analysing its customers' overseas spending.
It says that based on the average fee of 6%, UK travellers are being charged just under £500m a year.
Overall, one-in-five foreign transactions are affected, but in some countries and with some transactions the proportions are much higher.
At least half of the UK spend on cards in the Netherlands and Hungary is subject to the charges, and more than half of cash withdrawals in Sweden.
Thailand, Malta, Spain, Cyprus and Turkey all come high in the list of countries where people should be careful.
Dynamic currency conversion is legal in the UK and across Europe, as long as traders display not just the price but also the exchange rate being used before the payment is made.
But often the rate isn't shown in the form British tourists are used to and, in any case, most people find it hard to assess a rate on the spot.
"The way it is pushed is abhorrent," says James Hickman from FairFX, "The amount they charge should be capped."
Who benefits? The gains are usually split between the trader and the trader's bank or payment processor.
That means dynamic currency conversion can be sold to shops and other businesses as a way of recouping their banking costs and even make a profit on top.