By Gavan Smythe, Managing Director, iCompareFX
Taking a business globally can be an attractive prospect, potentially targeting markets with fewer competitors, taking advantage of a larger consumer base and even gaining access to cost-effective manufacturing resources.
However, it’s not as simple as just shipping product overseas. Successful international traders conduct extensive market research, understanding each region’s barriers to entry – whether it’s regulations around communication and marketing, finding key contacts in supply chain management or navigating legal and cultural restrictions.
This also means identifying the hidden costs of international trading, which threaten the bottom line of businesses.
The price of peace of mind
Online trading isn’t without its complications. Buying online means handing over confidential bank or card details and, without the right protection in place, it can leave consumers open to theft and fraud.
That’s why e-commerce payment services include a gateway model, which secures transactions by encrypting the cardholder’s details and managing the payment process for the merchant.
However, like any specialist service, merchants pay to keep this sensitive data safe. Gateway fees are typically calculated as a percentage of the transaction amount. And while this payment model is useful for SMEs – helping them efficiently scale – it represents an additional cost that many business owners don’t account for.
Those tempted to simply roll out the cheapest service risk damaging their reputation by potentially being an unsafe seller and one which undervalues its customers. This will eventually impact revenue, as customers look elsewhere, and merchants navigate the costly time spent ironing out problems with insecure payments.
When it comes to choosing a payment gateway service, key considerations should include working with a provider which operates across the same regions and checking contract terms. Some providers may charge set-up fees, monthly subscription fees or implement a blanket charge if a minimum volume of transactions isn’t met.
Merchants should also consider whether to use a direct or indirect payment gateway. While direct payment gateways allow consistent branding with customised design and copy, it may cost extra to integrate the service with an existing website.
Indirect gateways take users away to a separate payment portal on a different page. This is cost-effective to install and can appear more secure to users as they may be using a familiar and trusted payment gateway brand
Calculating conversion fees
As a business owner, payment gateway solution providers charge a number of percentage fees. While for sellers in domestic markets the fee structure can be quite simple, for online sellers in overseas markets, the fee structure becomes complex.
For example, as an international online seller, you can be subject to additional costs for processing international cards, plus additional currency conversion costs back to your business’ home currency.
In some circumstances, this can cost up to 9 percent of your sale revenue. A business has the choice of passing these costs on to the customer or to reduce its profit margin in international markets.
Businesses shouldn’t rush when it comes to choosing a provider. Taking the time to review and compare what’s out there puts them in a stronger position to choose the perfect match.
Providers vary in their offerings, from the regions they operate in, to their fees and exchange rates and even transfer speeds. Those who value trust and transparency may be willing to pay slightly higher to work with a provider which offers exceptional customer service standards, helping them navigate the currency exchange process.
For those moving into multiple markets, it’s worth using a comparison service or tool to make sure they’re partnering with the right provider for each currency pair and region, as it’s unlikely a single provider will offer a blanket ‘best solution’ across the global market.
The role of multi-currency accounts
Gavan Smythe
Having looked at the impact of currency conversion fees, what can businesses do to mitigate these costly charges when it comes to trading in an increasing number of currencies?
Opening a multi-currency account allows businesses to access the speed and affordable conversion costs needed to make the most of international trading. They allow businesses to access unique local banking details in foreign countries and all balances and transfer controls are accessible within a single dashboard.
Not only are the conversion fees associated with these accounts much lower compared with transferring currencies between bank accounts but it’s also quick and efficient – allowing businesses to access funds almost instantly and pass this convenience on to customers.
Specialist money transfer companies that offer multi-currency account solutions offer these services at no monthly cost. Simple and low-cost fee structures are applied on currency conversion and outgoing funds. And incoming receipts of money transfers don’t cost a penny.
Not all multi-currency account solution providers offer access to the same currencies. Furthermore, not all payment gateways offer support for payouts in multiple currencies. Businesses should conduct an assessment of current and future customer and supplier locations to choose the most appropriate solution provider.
Conducting an internal risk assessment helps businesses decide which multi-currency account makes sense for them, based on key requirements, like the number of supported currencies, target regions, potential overdraft facilities and ease of transfers.
Managing international suppliers
In many industries, international e-commerce is not as simple as just sending products to different regions. Logistics and legal regulations across the world mean businesses are often required to work with local specialists to deliver their service or offering.
This may mean working with local manufacturers to produce products in each region or simply partnering with local marketing, PR or advertising professionals to create culturally sensitive brand awareness in the native language.
In these cases, the business becomes the customer. They are required to make payments in multiple currencies as they manage their global operations.
For example, UK bank accounts charge relatively large fees to make payments in foreign currencies and these soon add up when running operations around the world.
This is where multi-currency accounts again prove fruitful. Not only do they allow businesses to hold multiple currencies – which is ideal for sellers – but they can also send money to other accounts with minimal fees if they’re in the same currency.
Paying suppliers in the same region as their customer base can remove the double currency conversion by receiving payment gateway payouts in the foreign currency and paying out of the multi-currency account in the same currency. No currency conversion is necessary in this scenario.
Businesses able to identify all these costs and admin fees up-front will be best placed to get the most value from the research and comparison stage when comparing providers.
Ultimately, they’ll achieve the lowest possible fees for each market, currency and transaction.
Wanda Rich has been the Editor-in-Chief of Global Banking & Finance Review since 2011, playing a pivotal role in shaping the publication’s content and direction. Under her leadership, the magazine has expanded its global reach and established itself as a trusted source of information and analysis across various financial sectors. She is known for conducting exclusive interviews with industry leaders and oversees the Global Banking & Finance Awards, which recognize innovation and leadership in finance. In addition to Global Banking & Finance Review, Wanda also serves as editor for numerous other platforms, including Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune.