Should I use a multi-currency pricing solution offered by my acquirer, or manage my own currency conversions?

Here’s a short overview of the advantages and disadvantages of both.

Author: David Drever
Date: 07 Apr 2020

Should I use a multi-currency pricing solution offered by my acquirer, or manage my own currency conversions?

When selling internationally to online merchants, you can choose to pay additional transaction service charges and let your acquirer manage your currency conversions, or set up additional bank accounts, work with an FX rate provider and do it yourself. Here’s a short overview of the advantages and disadvantages of both.


Use a multi-currency service offered by your acquirer

If you currently allow shoppers to pay in their own currency using  multi-currency pricing, but only want to receive your own base currency, your acquirer will often be able to convert and settle monies to you in the currency of your choice - directly to your bank account. This is normally easy to set up but is typically more expensive than the alternative of you having to manage like-to-like settlement (see below). Unless you are a merchant processing vast numbers of cross border transactions, you’re likely to pay way more than you would for domestic transaction processing.

Advantages

§  Easy setup

§  Available for merchants in most countries

§  Reduced administrative (tax and compliance) considerations

§  Can offer shoppers almost any global payment currency.


Disadvantages

§  Funds are converted by an acquirer back into your base currency before sending funds. The rate charged is more expensive than you’d pay to a dedicated FX broker or bank, if you were to manage the process yourself.

§  If you have expenses in a foreign currency, this means you’ll incur FX fees when receiving the funds into your bank account. You’ll then need to convert funds back into the foreign currency in order to pay your expenses.

§  You may need to actively manage prices in all the shopper currencies to ensure you don’t lose the value of your goods or services.

§  You’re open to the FX price moving between capturing a payment, and receiving the funds converted by your acquirer

In summary, multi-currency pricing is the easiest and most widely available solution. However, it’s rarely the most cost effective, and as you begin to trade higher volumes it quickly becomes expensive. The alternative is setting up Like-for Like currency settlement.

 
Operating and managing an in-house like-for-like processing solution?

If you accept multiple currencies and choose to receive settlement directly in those foreign currencies, it's called "like-to-like settlement”. This prevents the need to have currencies converted by an acquirer before you receive the funds. Essentially, you’re choosing to manage you own currency conversion and you choose when and if you want to exchange. This effectively moves the FX event away from the acquirer and helps to reduce cost. It also enables you to convert funds using an FX broker or currency conversion provider of your choice.  

Controlling the timing of your currency conversions can mean massive cost savings, but also opens you to a tremendous risk. Just look at the movement in currencies during February and March 2020. Could your business absorb these movements if you are on the wrong side of the market?  You also need to consider other potential costs including corporate, tax and banking. Of these, possibly the biggest consideration is your business being exposed to the FX risk.


Advantages

§  Lower cost of processing and significant potential cost savings

§  You choose when to perform a currency conversion

§  Enables you to pay foreign currency expenses directly from funds held in your own foreign currency accounts.


Disadvantages

§  Risk of foreign exchange movement impacting profits

§  You need to maintain multiple bank accounts (one for each currency you want to hold funds in).

§  Ongoing work to maintain the necessary corporate and banking structures.

§  Some exotic payment currencies aren’t available (or at least are extremely difficult to find) for like-to-like settlement.

 
What are the risks associated with managing your own currency conversion?

We can begin with an obvious statement: when funds are converted from one currency into another there is a cost associated with it. Also, for reporting purposes you’ll need to decide whether to use the exchange rate for the date on which the transaction was processed, or the date when funds are settled from the card issuer to the processor, or the day the funds are sent out to the merchant?

 
How does FXCPay help with the above challenges?

FXCPay is a new multi-currency pricing alternative which allows merchants to accept payments in multiple currencies, at a fixed price of 1% (including all card processing fees), whilst removing the FX risk entirely. You’ll be settled in the currency or currencies of your choice, but you’ll always know exactly what you’ll receive even before a transaction is processed.

For merchants with expenses in multiple currencies, FXCPay also provides a currency management tool. This allows you to take like for like settlement on a portion of your payments, then switch as required, to your base currency. For example, if you’re a UK merchant who receives a monthly bill in EUR (in this case €10k), you can collect the first €10k and receive it in EUR, then convert the rest to GBP automatically.

 
Advantages

·      A low fixed price which is lower than your payment provider can hope to match

·      Foreign exchange security – transactions are converted live, meaning there’s no risk of the market moving against you.

·      A flexible currency management tool, allowing you to control your multi-currency expenses in a simple, clear way.

 
Disadvantages

·      Merchants may need to adapt their website to display prices in multiple currencies
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