Foreign exchange: A world of (missed) opportunities?

By Dave Janse, Vice President for Foreign Exchange and Multi Currency Processing, Ingenico ePayments

Online shopping has become the primary interface with the retail world for the vast majority of consumers. Retail is in the midst of a dynamic new era where eCommerce has broken down regional borders, bringing consumers and merchants to one international marketplace, existing entirely in the digital space.

Foreign exchange (FX), or the conversion of one currency into another, is the lynchpin that underlines international trade, but it’s still an area where many merchants lack the necessary level of expertise, which ultimately leads to lost sales and disgruntled customers. 

In my experience, I’ve seen far too many global eCommerce businesses who think of payments as a commodity – they simply sign a contract with a bank or payment service provider (PSP) without really analyzing whether their payment partner can fully support their FX needs.  

Here are five things every merchant needs to know when it comes to FX:

  • One-in-four shoppers will leave a website if local currency is not offered. For example, say you’re a European merchant and you want to enter the Chinese market. You’ll experience a big difference in sales if you offer payments in euros versus Chinese yuan. We’ve conducted years of research into this phenomenon and uncovered some fascinating data: roughly 25% of consumers will leave the moment they hit a website if it doesn’t offer prices and payments in their local currency. That’s a huge drop-off for merchants – nearly a quarter of sales lost in the very first few seconds.

  • External currency converters lose sales. Another reason for customer drop-off is currency conversion. To continue with the example of Chinese consumers, once they arrive at the checkout stage and see a final sum in euros, they’ll immediately take that euro amount to a currency converter website, to see how much it costs in yuan. Not only is this redirecting the consumer away from the merchant’s site right at the critical point of sale, but there’s also sure to be a discrepancy in foreign conversion. External currency converters typically use the mid-market interbank rate, not the inferior retail rates that consumers would actually be required to pay, causing dissatisfaction when the true cost appears on their card statement.
     
  • Consumers don’t realize banks charge 4-5% for currency conversion. Going one step beyond the difference in exchange rates between the external currency converter and the retail conversion rates, customers are often unaware that banks also charge a foreign currency fee. Typically, a card issuer or bank will charge a fee of around 4-5% for purchases made in a foreign currency, which won’t be revealed by the currency converter. As a result, customers are often shocked to discover that their purchase ended up costing significantly more than they originally expected and they will be less likely to shop at the same merchant again.
     
  • Unhappy customers will always blame the merchant. Look at it from a customer’s perspective: imagine you go online to book a hotel room, but when it is time to pay, your transaction gets declined. You know you have more than enough funds available through your card, so you try again. It still gets declined. As a customer, you don’t know what the problem is, so you naturally assume it’s the booking site and go to a competitor to book your trip. However, it’s often not the merchant’s fault at all, but rather the bank’s. If the transaction is requested in a foreign currency, the bank could see this as a fraud attempt and block the transaction. Not only are your sales impacted, but how many consumers would return to your site after an experience like that? And how many are going to complain about their experience to friends and family? Customer dissatisfaction and reputation damage as a result of foreign exchange happens all the time, but it doesn’t have to.
     
  • Exchange rates fluctuate. Another issue that merchants face when offering FX on their websites is the timeliness of conversions. For instance, imagine you’re a European merchant selling into a variety of cross-border markets, including Sweden. You might be receiving Swedish krona and then asking the bank to convert the krona into euros at a later point. Normally, treasuries will save up the krona and convert them all at once in a single, recurring transaction. However, exchange rates fluctuate and if you wait too long to convert the krona into euros, you also run the risk of the exchange rates dropping and potentially losing a significant portion of your total profit.

Foreign Exchange value for both consumers and merchants

It goes without saying that in this global economy, where people are shopping across borders by paying in their own currencies, I believe FX is critical. Localizing websites and offering customers the currencies they prefer to pay in is the most obvious option, as it reduces customer drop-off and increases customer satisfaction. It’s also one of the most important ways in which global online merchants can take control of their transactions.

Offering multiple currencies doesn’t mean you need to get paid in multiple currencies. A good PSP will be able to offer remittance in select, preferred currencies while also providing transparent exchange rates for cross-currency settlement.

There are additional ways that merchants can leverage FX to their own benefit.  For example, when a European customer books a hotel room in USD, their card-issuing bank will use an inflated FX rate in order to collect EUR.  As discussed previously, the typical spread levied can be upwards of 4%

But what if you, as the hotel, took control of this process? By offering consumers the option to pay in their native currency, while creating a competitive local price, merchants can increase revenue and eliminate confusion around the all-in cost. Your customer is happy because they won’t find any nasty surprises on their credit card bill, and you’ve just managed to create an incremental revenue stream, rather than give it the banks.   

So how can merchants wade through the tricky waters of foreign exchange? You need to analyze your situation and find someone to help you implement a FX strategy that suits your business needs, as well as look at currency pricing and what your PSP is charging you. The choice to localize in your target markets is ultimately up, but think about it – if you can get additional growth by optimizing your payments and leveraging FX to your advantage, what are you waiting for? 

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Dave Janse, Vice President Foreign Exchange and Multi-Currency Processing

In his role as Vice President Foreign Exchange and Multi-Currency Processing, Dave is responsible for Ingenico ePayments’ foreign exchange business unit, supporting e-Commerce partners with all aspects of multicurrency processing, foreign exchange pricing,  localization and growth strategies. His aim is to simplify the processes and risks associated with currency conversion and provide merchants with pan-industry best practice advice on localization and currency remittances to increase their global business.

Dave joined Ingenico ePayments (formerly Global Collect) as Head of FX EMEA in 2013. Prior to joining Global Collect, Dave was Head of Sales for GWK Travelex, responsible for all B2B services including FX and payment solutions. In this role, he also managed an agent branch network of 115 locations that provided cross-border money transfers and cash to bank payment solutions. After voluntary military service developed a successful career in various international sales and new business development roles.