The Importance of providing local currency-based payments

Why is paying in local currency important?

Today eCommerce is a truly global business. The internet has allowed purchases to be made all over the globe. As eCommerce increasingly becomes borderless so has the way we pay. Cash has been replaced online with credit cards and increasingly alternative payment options (APMs).[i] How we pay has become increasingly complex and 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 shopping cart abandonment rates at 70%.[ii] Allowing customers to pay in their own currency can reduce this abandonment by up to 50%.[iii]

How can merchants offer local currencies-based payments and 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 to customer to pay either in the original pricing currency shown to the customer or in the billing currency of their own card, which may be different to the country of issue. 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 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 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 alternate payment methods (APMs) important and should I offer them in a local currency?

Payments methods that are not credit cards are referred to as APMs. These include bank transfer, direct debit, ewallets, mobile payments, phone payments and biometric payments. If you are trading cross border it is vital you offer alternate payment methods. It is predicted 55% of all online transactions in 2019 with be processed by alternate payment methods.[iv] Alternative payment methods are often unique to a country of region. Ideal in Holland, UnionPay in China, Przelewy 24 in Poland, Boleto in Brazil are examples. Customers will be used to seeing prices in their own currency when using these payment methods and a merchant should ensure they offer in their native currencies as to avoid confusion which can lead to shopping cart abandonment.[v]

[i] https://www.klarna.com/knowledge/articles/why-alternative-payment-methods-are-shaping-the-future-of-e-commerce/

[ii] https://baymard.com/lists/cart-abandonment-rate

[iii] https://www.mlveda.com/multi_currency_checkout.html

[iv] https://www.klarna.com/knowledge/articles/why-alternative-payment-methods-are-shaping-the-future-of-e-commerce/

[v] http://www.barilliance.com/wp-content/uploads/2018/02/Opti-Reasons-for-Shopping-Cart-Abandonment-top-10-reasons.jpg