I had that with very small shops in non-touristy areas of Mexico where it was absolutely clear to not be a scam attempts by the shops owner. They had no idea what the terminal asked.
Their payment processor (the people they rent the machine off of) offers them this oppurtunity to 'unlock hidden revenue for merchants'[1][2][3] and they are happy to do this.
Visa in fact tried to ban it: https://en.wikipedia.org/wiki/Dynamic_currency_conversion
Of course, there are regulations and agreements with various institutions that should be followed - but it's free money for the shop, nothing else.
[1] https://www.shift4.com/blog/dynamic-currency-conversion-unlo...
[2] https://www.fexco.com/payments-and-fx/currency-conversion-so...
[3] https://docs.adyen.com/point-of-sale/currency-conversion/
Makes sense that shop owners in non-touristy areas haven't seen them before, as you'll only see that when the card has a default currency that differs from the default currency of the terminal.
So if your Mexican merchants "don't know" what their terminal says? Either you were their first foreigner, or they're useful idiots, or they know.
For my part, I'd just always assumed the charge would be ultimately converted by my bank in any case. Seems obvious now I look back, but I honestly just didn't think about the trick.
Just as an example that gives evidence for this, sometimes you'll go to the same place multiple times and the norm is they ask but occasionally someone won't. So it's not a policy.
I presume the people who don't just don't know about it, don't want to bother me and aren't aware it will make a difference.
He could have merely been the first to do the math and bring it up. I could easily see most tourists overlooking this sort of thing, or not mentioning it because they're already accustomed to it.