Shoppers are far less likely to complete a purchase on an ecommerce site that fails to display products in their preferred currency throughout their purchasing experience. When considering making international purchases, 76% of shoppers look for sites that price all products in their home currency and 19% of shoppers across Canada, UK and US cite lack of payment options as the reason for abandoning digital carts.
Brands that adapt to local markets, like offering several currency options, will be more successful expanding globally. But is multi-currency acceptance worth the hassle?
Retailers considering multiple currency acceptance should keep the following in mind.
Retailers typically add a percentage markup to the cost of producing or purchasing a product. This pricing is often based on a retailer’s local currency, which means each time a buyer purchases the product using a different currency, the transaction amount is determined by real-time currency exchange rates.
Because exchange rates for fiat currencies fluctuate constantly, this exchange rate can work in favor of the retailer or the buyer, depending on the timing of the purchase. The result is an inconsistent profit margin, sometimes even a loss.
To help alleviate this issue and maintain more consistent margins, some retailers price products differently for each currency they accept. This also allows retailers to adapt pricing based on cultural expectations, local competitors and tax considerations. Although this is an improvement over the exchange-rate based approach, it requires more maintenance per item.
Foreign transaction and currency conversion fees can deter customers from purchasing through overseas retailers and lower customer satisfaction. Many banks charge a foreign transaction fee of three to five percent for any transaction that’s performed in a currency other than the bank’s primary currency or that passes through a foreign bank. Many ecommerce sites don’t make these fees immediately obvious at the time of purchase so customers don’t see the added cost until it shows up on their credit card statement.
Many online merchants offer Dynamic Currency Conversion, a service that converts the transaction into the user’s preferred currency, usually at an inflated currency exchange rate. Consumers typically assume that transactions translated to their bank’s primary currency will not result in a foreign transaction fee.
Even in these dynamic currency conversion scenarios, most banks still charge a foreign transaction fee since the transaction is passing through a foreign bank. In this scenario, the consumer is paying a premium to transact in their preferred currency on top of a three percent fee charged by their bank.
Here, the risk is an unhappy customer who believed the purchase was made using a local retailer. Many ecommerce sites are attempting to combat this confusion by including disclaimers on the site’s check-out screen.
Most countries impose a tax on the sale of goods. VAT (value-added tax) is the most common foreign tax, charged in more than 160 countries. Review the VAT rules of each country you’re considering shipping and selling to, and understand the steps to register and file returns.
In addition to taxes, duty fees apply to many goods that are shipped across borders. They are paid before an item is shipped, called Delivery Duty Paid (DDP), or once an item is received, called Delivery Duty Unpaid (DDU). Make sure you understand the duty associated with each product you sell and that customers are aware of their responsibility to pay duty fees.
Preferred payment methods also vary by country, so it’s important to provide geographically-relevant payment gateways. For instance, the preferred method of online payment in the United States is credit cards, while in Europe the most common is PayPal or Alipay. Just as with currency, if customers are unfamiliar with the method of payment your site offers, they will lose trust.
These considerations haven’t deterred retailers. In fact, 32% of sampled retailers are using multiple currencies in their day-to-day operations—six different currencies on average.1
With the growing popularity of cryptocurrencies like Bitcoin, Ethereum and Ripple, cross-border currency lines could start to blur, and these headaches may someday be a problem of the past. Some major ecommerce sites, like Overstock.com, Microsoft and Expedia, have already begun accepting Bitcoin payments. However, because cryptocurrency payments are still largely nascent, with low consumer adoption for mainstream purchasing due to lack of knowledge and uncertainty, we are far from a fully electronic global monetary system.
Consumers are expected to spend $2.9 trillion on cross-border ecommerce by 2022. In other words, retailers that aren’t leveraging multiple currencies today should consider it while keeping some of these complexities in mind. Start thinking beyond your home town, your home state, your home country. If you aren’t, your competitors surely are.
1. NetSuite Click here to learn more about how NetSuite gathers data.