The Benefits And Challenges Of Local-Currency Acceptance

The shrinking global market is making acceptance of local currencies increasingly necessary for online merchants in particular as they expand into new markets. While this may complicate companies’ expansion plans, it also can help drive more sales and create differentiation for competitive advantages. However, it requires strong back-office processing and accounting support to make it work.

U.S. companies looking to expand into international markets face a plethora of issues to make such growth strategies work. Not only do they have to sift through the legal and regulatory issues for each country in which they intend to operate, but they also should consider accepting payment in customers’ home currencies.

Accepting payment in foreign currencies may sound simply enough, but it can involve complicated and ever-changing exchange rates, not to mention the management of payments data in internal accounting systems. Security issues also can create problems in certain markets, as can having to comply with complex rules and regulations.

In some markets, such as in Asia, companies may find particular nuances in what their buyers expect. In a recent report, for example, global card processor Payvision found that companies in Asia do not want any surprises regarding the actual cost of the goods in purchases. As such, they want to pay in their own currency, thus eliminating the exchange-rate risk for the customer.

Expertise reliance

“In order to get a clear understanding of the final costs, including shipment  of a product or service, customers rather prefer to pay in their own currency,” the report notes. “Besides, merchants have to convince their customers that their identity and card information will be dealt with in a secure manner. Companies that provide payment solutions have to comply with the latest international safety standards to ensure that customers can be offered a variety of secure online payment methods.”

As such, the report suggests that businesses work with companies that have a global acquiring network and that have the expertise in all aspects of cross-border eCommerce and multi-currency processing and risk management.

As PYMNTS.com reported last week, some companies, such as Zooz, are helping to reduce merchants’ currency-conversion and cross-border fee expenses often incurred when accepting transactions in foreign currencies by working with local acquirers, thereby avoiding such expenses. Others, such as World First, which can pay in 109 different currencies across 274 different countries, similarly are positioning themselves as alternatives to banks with a focus on customer service among their chief differentiators.

Market differentiation

In using such services, or those offered by banks, companies can accommodate the wishes many customers might have in paying with their local currencies, and they can invoice them appropriately. In doing so, they can differentiate their company from many other smaller competitors, especially for transactions initiated online.

But it will require some work, as companies will need to have appropriate systems in place. In a recent article in SmallBusiness.co.uk, which provides resources, products and services for small-business owners and start-ups, Emily Coltman, chief accountant at UK accounting-management company FreeAgent, suggested various options businesses could use. For example, they could set up bank accounts in customers’ countries. However, that could prove costly and difficult, especially when trying to transfer funds from those accounts to the business’ own account, she said.

“Alternatively, there are other systems, such as PayPal, which allow you to accept payment in multiple currencies without having to set up a new bank account,” Colman noted. “PayPal can then translate all your money into pounds sterling as you receive it, no matter what currency your customers actually paid you in. However, they do charge a fee for this service.”

How a UK system works

UK companies using FreeAgent’s online accounting systems, for example, can pick the currency as they set up each customer. Thereafter, the system automatically will translate the invoice into pounds sterling for inclusion in their year-end accounts, Colman said.

“However, it’s important to remember that if you’re invoicing in a foreign currency, you still have to produce accounts for [HM Review and Customs] that are all in pounds sterling, so you’ll have to translate your invoices and the money you receive,” she said.

HM Review and Customs is a UK-government department responsible for collection of taxes. Companies selling in a foreign country and working with multiple currencies must make sure they follow the rules and pay the correct amount of tax on the money they owe or face a visit to the department and/or the tax office where they’re selling, Colman said.

Handling payments in customers’ own currencies offers sellers both advantages and challenges. It helps accommodate the desire among many customers to make understanding their costs simpler, but it also requires a lot of back-office support to keep local currency-paying customers happy as well.