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 currency conversion is the lynchpin underlying international trade but many cross-border sellers lack the necessary level of expertise in this area, ultimately leading to lost sales and disgruntled customers.
Here are 5 things every cross-border seller needs to know when it comes to FX:
Offer Payment Acceptance in Local Currency
Our proprietary research has shown that 25% of shoppers will leave a website if their preferred local currency is not offered. That’s a huge drop-off for cross-border sellers – nearly a quarter of sales lost in the very first few seconds. For example, if you’re a U.S.-based merchant and you want to enter the Chinese market, you’ll experience a big difference in sales if you offer payments in dollars vs. Chinese yuan.
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 checkout and see a final sum in dollars, they’ll immediately go to a currency converter website and check it yuan. Not only does this redirect them away from your site right at the critical point of sale, but there’s also sure to be a discrepancy in currency conversion. External converters typically use the mid-market interbank rate, not the inferior retail rate that consumers would actually be required to pay, causing dissatisfaction when the true cost appears on their card statement.
Currency Conversion Rates Are High
Many consumers aren’t aware that banks charge 3%-5% for currency conversion. On top of that, they also charge a fee of around 3-5% 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 their purchase ended up costing significantly more and they will be less likely to shop with you again.
Unhappy Customers Always Blame the Merchant
Imagine you go online to purchase an item, but at checkout your transaction gets declined. You know you have more than enough funds available 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 website and go to a competitor to buy the item. However, it’s often not the merchant’s fault but 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 not many consumers would return to your site after the negative experience. 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 cross-border sellers face when offering foreign exchange on their websites is the timeliness of conversions. For instance, imagine you’re a U.S.-based merchant selling into a variety of cross-border markets, including Sweden. You might be receiving Swedish krona and then asking the bank to convert it into dollars at a later point.
Normally, treasury departments will accumulate funds and execute periodic transactions on an incremental basis, usually quarterly. However, exchange rates fluctuate and if you wait too long to convert you also run the risk of the exchange rate dropping and potentially losing a significant portion of your total profit.
Foreign Exchange Value for Consumers and Merchants
There are additional ways that merchants can leverage FX to their own benefit. For example, when a European customer buys an item in dollars, their card-issuing bank will use an inflated FX rate in order to collect euros. As discussed previously, the typical spread can be upwards of 3%.
But what if you 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 surprises on their credit card bill, and you’ve just managed to create an incremental revenue stream rather than giving it to the banks.
To wade through the tricky waters of foreign exchange, cross-border sellers need to analyze your situation and find someone to help you implement a foreign exchange strategy that suits your business needs. The choice to localize in your target markets is ultimately up to you. This allows you to realize additional growth by optimizing your payments and leveraging FX to your advantage.
Michael Bilotta is Head of Foreign Exchange North America and LATAM for Ingenico