The importance of providing local currency-based payments

This editorial was first published in December 2019, in our Cross-Border Payments and Commerce Report 2019 – 2020, which provides a comprehensive overview the major trends driving growth in cross-border payments, cross-border commerce, and marketplaces.

Why is paying in local currency important? 

Today ecommerce is a truly global business, with 30% of ecommerce sales (USD 196 billion) being cross border. 

The internet has allowed purchases to be made all over the globe. Therefore, as ecommerce is more and more headed towards becoming borderless, so is the way we pay. Online, cash has been replaced with credit cards and, increasingly, with alternative payment options (APMs). How we pay has become more and more complex but also vital to merchants. 

With the constant fluctuation of foreign exchange rates, pricing can be confusing for consumers attempting to make a purchase, especially in a foreign currency. Research shows ecommerce shopping cart abandonment rates at 70%, and allowing customers to pay in their own currency can reduce this abandonment by up to 50%. The key for merchants is to ensure they are offering customers the ability to pay in their local currencies whilst also guaranteeing they mitigate and manage any risk that can arise due to the volatility of foreign exchange. 

How can merchants offer local currencies-based payments? Are they regulated? 

The options for merchants are dynamic currency conversion (DCC) and multi-currency pricing (MCP). 

When a merchant adds DCC to their payment page, they allow an offer to be made for customers, so that they have two options: either to pay in the original pricing currency shown to them or in the billing currency of their own card (which may be different to the issuing country). 

If the customer’s card currency is accepted by the merchant, then a choice of these two payment currencies is offered on the payment page. This choice of payment currencies is referred to as dynamic, because a DCC offer is not made to the customer until they have entered their card payment details – and their card currency can be identified. 

DCC is regulated by Visa and Mastercard, and it is only available when the customer selects those payment methods. Merchants who offer DCC open up an additional ancillary revenue stream without increasing prices, because revenue is earned on the FX margin, on the exchange rate, which would otherwise be earned by the customer’s card issuing bank. DCC also provides convenience to the customer because they can see and approve the final payment amount in their own currency at the time of purchase, without having to wait in order to see the final amount on their statement (that would be dependent on the exchange rate used by their issuing bank). 

MCP is used when a merchant wishes to offer their goods or services to the customer, priced in multiple currencies, prior to the subsequent payment process. This choice of many payment currencies may be offered at any time during the order/booking process. MCP may be used for many payment methods – not just Visa and Mastercard –, but the currencies available may be limited for different payment methods such as APMs chosen by the customer. Offering a choice of currencies earlier in the order/booking process can help the customer to make their decision to purchase, since they can view alternative prices in their own currency. 

Why are APMs important? Should I offer them in a local currency? 

Payment methods that are not credit cards are referred to as APMs. These include bank transfer, direct debit, e-wallets, mobile payments, phone payments, and biometric payments. If you are trading cross border, it is vital that you offer APMs. It is predicted that 55% of all online transactions in 2019 will be processed through alternative payment methods. APMs are often unique to a country or region. iDEAL in the Netherlands, UnionPay in China, Przelewy 24 in Poland, Boleto in Brazil are just a few examples. Customers using these are familiar with seeing prices in their own currency. A merchant should ensure they offer prices in their native currencies as to avoid confusion, which can lead to shopping cart abandonment. Worth mentioning is that MCP can be used for APMs. 

Is it enough to have localised websites and pricing in local currencies? 

Building localised websites in multiple countries with pricing in local currency is only half the battle. Offering your consumer the ability to switch from pricing currency to their preferred payment currency on the ‘path-to-payment’ will see increased conversion rates of up to 20%. Based on the analysis of online customers, up to circa 20% of in-country consumers’ preferred payment currency is different to that country’s domestic currency and the currency you have priced in. 

However, ‘pricing in-country’ does not mean pricing in your consumers’ preferred currency. In-country resident and non-resident shoppers (business travellers, migrant/contract workers, and tourists) can have a payment method currency that is different to (a) the pricing currency and/or (b) the currency of the country they are logged-in from. Offering these consumers the ability to pay in their preferred currency is essential. Therefore, it is important that you offer multi-currency choices as well as in-country payment methods. 

About Joe Matthews 

Joe heads up Continuum’s ecommerce division. He has over 10 years of experience in payments. Specialising in cross border ecommerce, foreign exchange, fraud and acquiring. He has a legal background and is commercially minded. He has previously held roles at Paysafe, Inpay, and ACI Worldwide. 

About Continuum Commerce Solutions 

Continuum provides innovative online and offline multi-currency processing solutions. We are passionate about innovation; where we lead, others follow. We provide global, scalable, multi-currency processing solutions directly to our end-user merchants and ‘white-labelled’ to our channel partners across five continents. Innovation is a key focus and ensures that we continue to lead from the front.