Currency Exchange and Payment Processing for International Sales Online

Although ecommerce is currently thriving all over the world, it was many years before online retailers could easily make international sales. It was simply too difficult for companies to accept payments when buyers and sellers did not use the same currency.

Fortunately, that is no longer the case. Businesses now have the opportunity to make far more sales and many more potential buyers, because it no longer matters where their customers are located. 

Still, there are several things you should know about currency exchange and payment processing for international sales before accepting foreign orders.

Definition and importance of currency exchange and payment processing for international ecommerce

Currency exchange is the process of converting one country’s currency into the currency of a different country. What makes it so complicated is that the value of each currency is constantly fluctuating. It may cost you $1.05 to buy one euro today, and the same euro could cost $1.10 next week.

Payment processing is the transfer of funds from a buyer to a seller. It’s crucial to international commerce that a variety of methods are available for processing payments in different currencies and languages so that customers can make payments in their home currency while sellers receive those funds in their local currency.

International payment processing methods

There are several methods of payment processing that businesses can use to ensure smooth transactions with customers around the world. Online retailers may benefit from offering customers multiple options.

Credit and debit card payments

Credit card processing and debit card payments are probably the most common methods of international payment processing. The main advantage of card payments is the convenience because they can be executed instantly. 

However, there are some potential disadvantages for both buyers and sellers, including:

• High transaction fees;
• Chargebacks;
• Fraud risk, etc.

PayPal and other digital wallet payments

Smaller online retailers who don’t want to apply for their own merchant accounts will sometimes offer PayPal as the only payment option. Even customers who don’t have a PayPal account can use their credit cards through the platform. 

However, PayPal is not available in all countries.

Bank transfers and wire transfers

The practice of paying for purchases through bank and wire transfers is much more common among businesses and customers located in countries other than the United States. These methods allow customers to transfer funds directly from their bank accounts to a seller’s account. 

However, it can take longer to process these types of payments, and their associated fees may be higher.

Alternative payment methods

Alternative methods of payment are now more common, particularly among younger generations. 

They include options such as:

• Payments on mobile devices, such as Apple Pay and Google Wallet;
• Prepaid cards;
• Cryptocurrency such as Bitcoin or Ethereum, etc.

Payment processing providers and solutions

Payment processing is an integral part of e-commerce. However, navigating the maze of payment providers and solutions can be daunting for company owners and managers. 

Understanding the difference between them should help.

Payment gateways

Payment gateways obtain authorization of online payments by processing credit card transactions between merchants and banks. They ensure secure and seamless transactions by encrypting sensitive information, verifying funds availability, and communicating with the card associations (e.g., Visa or Mastercard). 

The most popular international payment gateways are Stripe, PayPal, and Square.

Merchant accounts

A merchant account is a specific type of bank account that allows businesses to accept credit card payments. They’re different from payment gateways and merchant accounts because they’re held directly by the merchant rather than the payment provider. 

This way, businesses receive payment funds from credit card transactions after fees are deducted by the bank and card associations.

Payment service providers (PSPs)

Payment service providers (PSPs) are also different from payment gateways, as well as merchant account providers, because they usually do more than just enable merchants to accept online and in-person payments. 

Instead, in addition to payment processing, PSPs often provide all-in-one solutions that also include reporting, fraud detection, and customer support.

Payment facilitators

Payment facilitators are the middlemen between merchants and payment networks. They are revolutionizing ecommerce by making it easier for startups and small businesses to receive payments from international customers all over the world with quicker transactions and lower fees.

Currency exchange options in e-commerce

Currency conversion is a complicated process when so many transactions are completed instantly online. Fortunately, merchants who want to do business in international markets do have a few flexible solutions to choose from.

Currency conversion through payment processing providers

Payment processing platforms such as Stripe and PayPal provide currency conversion services to merchants accepting payments in multiple currencies. Not only do they offer customers a seamless payment experience, but they also handle all required documentation and compliance requirements.

Foreign currency bank accounts

Many banks offer a multi-currency merchant account that allows users to hold and transact in foreign currencies. 

These types of accounts can:

• Enable cost-effective international transactions;
• Mitigate currency exchange risk;
• Offer competitive exchange rates;
• Tailor various services to the needs of international businesses, etc.

Currency exchange services

Currency exchange services, such as foreign exchange bureaus and online currency exchange platforms, specialize in currency conversion. They often offer competitive exchange rates and have convenient locations or online platforms for easy access. 

Many also provide additional services such as wire transfers. However, rates and fees can vary widely, so make sure you are getting the best deal.

Best practices for international payment processing and currency exchange

It’s imperative that businesses operating in international markets implement best practices for currency exchange and international payment processing. It will save your business time and money while building trust with customers. 

Neglecting to do so can lead to increased potential for fraud, delays in settling payments, and higher transaction costs.

Offer multiple payment methods and currencies

You should offer some combination of credit cards, bank transfers, digital wallets, and other payment methods so customers can choose the one that best suits their needs. 

Also, your payment provider should support different currencies. When selecting local payment methods, you should take into consideration the most popular methods in the countries where your customers are located.

Use a reliable payment processing provider

A reliable payment processing provider is vital to ensure your customers’ sensitive financial information remains secure and transactions go smoothly. 

When selecting a payment processing provider, pay close attention to the provider’s:

• Security;
• Processing speed;
• Support services;
• Fees, etc.

Most importantly, make sure that the payment gateway is compliant with Payment Card Industry Data Security Standards (PCI-DSS) and has additional fraud detection measures to protect against chargebacks.

Monitor exchange rates and transaction fees

Currencies fluctuate constantly, while transaction fees vary depending on the payment method and service provider. Monitor exchange rates and payment provider fees regularly, especially if you process large transactions.

Communicate clearly with customers about payment options and exchange rates

If you want to gain the trust of your customers and avoid misunderstandings, it’s necessary to communicate as clearly as possible. 

It is particularly important to make sure they can easily find accurate and up-to-date information regarding:

• Payment methods available;
• Currencies supported;
• Transactions fees;
• Estimates of exchange rates;
• Payments processing timelines.

Implement fraud prevention measures

International payment processing always carries a risk of fraud. Set up mechanisms to detect, investigate, and report fraudulent activities. Also, educate employees on how to protect customer information and prevent fraud. 

Above all, make sure that the payment provider you choose has the following:

• Robust security features such as two-factor authentication;
• Fraud detection algorithms;
• Encryption.

Compliance and legal considerations for international payment processing

Compliance and legal considerations play a significant role in international payment processing. Businesses are required to adhere to all laws and regulations while operating in multiple jurisdictions to ensure consumer protection, security, and legality.

Data protection laws

International payment processors must remain in strict compliance with privacy and data protection laws in all of the countries where they operate. This includes securely storing customer data, obtaining proper consent, and ensuring compliance with regulations such as the General Data Protection Regulation (GDPR) in the European Union.

Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations

International payment processors must implement robust AML and KYC procedures. These regulations require those companies to monitor transactions for suspicious activity, verify the identity of their customers, and report any suspicious transactions to the relevant authorities.

Sanctions compliance

International payment processors must adhere to sanctions laws and regulations, which prohibit conducting transactions with individuals, companies, or countries under sanction. It is important to screen customers against the relevant sanction lists regularly to avoid legal repercussions.

International card scheme rules

Payment processors must remain in compliance with all of the rules and guidelines set by international card companies such as Visa and Mastercard. The rules ensure the integrity, interoperability, and security of payment transactions throughout different networks and countries.

Consumer protection laws

Businesses must adhere to all of the consumer protection laws specific to each of the countries where they operate. 

This includes:

• Protection against fraudulent activities;
• Transparent pricing;
• Dispute resolution mechanisms;
• Proper disclosure of terms and conditions;
• Tax regulations.

International payment processors are required to comply with tax regulations in all jurisdictions. This includes proper remitting and reporting of taxes, including goods and services tax (GST) and value-added tax (VAT).