Decision Brief: How Merchants Can Avoid FX Costs That Shave Margins and Hurt Sales

Introduction:

Online merchants can branch out into new markets and geographies. But to do so, and to boost sales, they must carry forward the implementation of a broad range of currencies, which means foreign exchange (FX) costs come into play. The impact of hidden FX costs on a company’s margins can be significant, and a lack of transparency can cause consumers to cancel the sale altogether. A balanced, transparent approach to presenting and calculating these costs can not only save the transaction but also boost the companies’ margins.

Objective:

This brief examines the ways in which merchants should explore the costs that are incurred as they consider payments acceptance strategies, as well as whether or how they can pass off those costs to consumers. The brief uses observations from a conversation between PYMNTS CEO Karen Webster and Worldline Consulting Services Global Head of FX and Payment Performance Ariel Setton.

Key Takeaways:

Merchants Must Assess Consumer Demands and Their Own Tech

New Markets, New Customers: If merchants are adept at identifying where their customers are coming from, they can assess revenue opportunities tied to including new currencies and conveying those currency options to consumers, instead of maintaining a foreign currency for the consumer that defaults to transfer the FX conversion revenues to issuers.

Clarity Is Essential

Calculating Costs: All too often, companies don’t have the insight they need to understand how FX costs affect their margins.

Conveying Those Costs: There are ways to present those costs to end consumers, with clarity on exactly what they’re paying (with certainty) so that costs can be turned into revenue streams.

Friction Must Be Eliminated

Too Many Steps: Consumers navigating several tabs on their computers or phones to see what the cost of a product or service is in their local currency sometimes generates consumer drop-off affecting the merchant’s conversion funnel, as toggling back to complete a purchase can be a cumbersome process.

FX Details Come Too Late: The presentation of those costs also can be frustrating for consumers. If they purchase in a foreign currency, then they only realize the actual amount to be paid in their statements after transactions are complete. This sometimes leads to “friendly chargebacks” when consumers’ estimations do not match the actual amounts.

All Strategies Should Be Local

Upfront Displays: Merchants should offer local currencies displayed alongside the goods or services being sold. Inventory should be translated into the consumer’s local currency to increase conversion rates and reduce shopping cart abandonment.

Technology Helps: Customers’ IP addresses can help determine which local currencies should be offered, creating a tailored approach that is free from clutter on the page. Many integrators already have tools to offer multicurrency pricing. Providers such as Worldline can offer a consultative approach that examines markups on a market-by-market basis.

Transparency Is Key: The best solution is one where consumers see the same price upfront, at checkout and on their card statements.

The Benefits Are Tangible

Loyal Customers: Chargebacks decrease when there’s an upfront disclosure about the ultimate costs paid by consumers.

Revenue Boost: When customers see all the pricing upfront, they’re less inclined to navigate to other sites or abandon online carts altogether — and customer conversion increases in the range of 5% to 20%.

Conclusion:

Online commerce continues to expand globally, giving merchants of all sizes and across all verticals the chance to capture more sales and market share. To maximize those sales, merchants must examine and address the FX costs and frictions inherent in their online websites and checkout pages to calculate and convey those costs to users as they move through the transaction in real time.