Payments IQ Bootcamp #4 - Multicurrency in Electronic Payments / Market Opportunity or Headache? g
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Brion Bonkowski Managing Director July 2, 2013 Boot Camp Week 4 Improve your Payment IQ Multicurrency in Electronic Payments: Market Opportunity or Back Office Headache?
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Transcript of Payments IQ Bootcamp #4 - Multicurrency in Electronic Payments / Market Opportunity or Headache? g
Brion BonkowskiManaging Director
July 2, 2013
Boot Camp Week 4Improve your Payment IQ
Multicurrency in Electronic Payments: Market Opportunity or Back Office Headache?
Back Office Requirements
Providers Matrix
What’s Next?
Q&A & Contact Information
Introduction
Who is Interested in Payments?
Why Multi Currency?
Multicurrency Overview
Deep DiveWeb Converter Tool
Dynamic Currency Conversion
US Based Multicurrency
Local Acquiring
Technology & Gateway Options
Agenda
Who is ROI Payments & Why a Boot Camp Series?
Who is interested in payments?
The end result?
Introduction
So Tell Me…Why Multi Currency?
US still largest ecommerce market but Europe, Asia, and LATAM are growing at a much greater pace
Global ecommerce market will surpass $1.35 Trillion USD by the end of 2013- just shipped goods- not services (hard to capture)
US Dollar only pricing on ecommerce sites more often than not leads to shopping cart abandonment; customers leave to:Customers leave to check exchange rates and often don’t return
Go to a competitor’s local site
Studies show when online businesses price goods in local currencies, or provide an online currency converter, sales and revenue will increase in global markets considerably.
Why Consider Multi Currency?
Regional Stats on Global eCommerce
Behavior Explanation UK Germany Australia Canada
Local Preference Prefer to make purchases from
local websites
84% 69% 85% 82%
Lost Sales Find products on USD site- then
search for local site to order
86% 80% 68% 63%
Conversion Rates Will leave USD only site to
calculate daily rate
65% 43% 47% 39%
Web Traffic Unlikely to revisit a site only
offering USD pricing
49% 57% 26% 22%
Increased
Revenue
Opportunity
Likely to spend more money on
sites in local currency
71% 64% 59% 53%
Customer
Experience
Concerned with how much
billed for FX
86% 76% 76% 39%
Increase in
eCommerce
Expect to increase online
shopping in next 12 months
63% 35% 70% 57%
Let’s Review the Various Options for Multi-Currency for US Based Online Businesses…
The Four Basic Options for Multicurrency
Option Description Recommended Volume
(in USD) to Consider
Web Converter Tool Simple tool to display items
in local currency as a
reference
<$10k/month
Dynamic Currency
Conversion (DCC)
Present localized currency
at time of transaction and
settle in USD
$10k-$200k/month
US Based Multi-
Currency
Present localized currency
and settle in localized
currency in the US
$200k-$2M/month
Local Acquiring Present, acquire and settle
transactions in local
currency in local region
$2m+/month
Multicurrency Option 1: Dynamic Converter Tool
This is basically just a multi-currency DISPLAY
Provides customers a REFERENCE for what the product cost is in local currency
At checkout, USD and local currency is displayed but transaction processed in USD
Advantage: low cost option to enable additional data on their site an option for eCommerce
Disadvantage: items are not processed in local currency so customers are subject to cross border fees, varying FX rates and the transaction does not feel local
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Multicurrency Option 2: Dynamic Currency Conversion(DCC)
Transaction price dynamically changes based on the days’ exchange rate at the time of payment
Customer is presented an option to pay in their local currency (of the issued card) or in the merchant’s currency
Customers see the actual amount at checkout that they will see on their credit card statement
The exchange rate is provided by the processor to the merchant and includes a markup on the FX
DCC an be used in card present (retail terminals) or online
Transactions are settled back into the merchant’s home currency
DCC is regulated by Visa & MC and adheres to scheme regulations
Advantages:
Easy to deploy
Way to “test international waters”
Can deploy up to 140 currencies
Disadvantages:
The FX mark-up can be expensive
Customers can still be charged a cross border fee
Note: Multi-Currency Pricing (MCP) is very similar to DCC – but instead of using the cards holders billing currency, it allows for the customer to choose which currency they prefer. MCP is not regulated by the schemes as it is a merchant re-pricing function not related to the card issued.
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Multicurrency Option 3: US Based Multi-Currency
Presentment and settlement in a local currency to a domestic account
Limited acquirers can enable this option, a few of them being:
Only a handful of gateways support this functionality
Requires merchants set up multiple domestic bank accounts (one for each currency supported) and thus support this in their financial systems
Advantages:
Good hybrid option
Lower fees than DCC
No international entities required
Disadvantages:
Acceptance may be lower
Cross border fee still may apply
More back-office financial oversight and maintenance
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Multicurrency Option 4: Local Acquiring
Establish acquiring relationship with a local banking institution and settle the funds to an account in that region
Best option for established businesses with high volume in particular regions
May require the establishment of a business entity in region
Typically- provides for the highest acceptance rates for cards, can be a lower transaction fee and allows for local schemes
No cross border fees for merchant or customer
Advantages:
Lower transaction costs
Best card/scheme acceptance
True local feel
Disadvantages:
Local entity required
Tax implications
More complex
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Technology & Gateway Options
Technology: Merchants need to ensure that the shopping cart, billing system or custom code that runs their businesses can support multiple currencies
Ability to store and deal with foreign characters (UTF8)
Ability to store sale price, fx rate, actual settlement expected price, etc.
Report appropriately to the financial side of your business
Gateways: Not all gateways are the same- need to consider what platform to invest in- especially if
doing tokenization (even of not doing multi-currency)
SMB Gateways- completely US focused
Enterprise Gateways (small handful):
Multiple currencies
Multiple MIDS
Can do slides 2/3/4
Deal with localized acquiring, online pin debit, 3d Secure, etc
Gateway plus Acquiring: PayPal option or Global Collect- have integrated acquiring into their platform natively- PSP
Vendor Matrix
Acquirers Processors Technology
Option 1: Web Converter- little/no back office considerations
Option 2: DCC:
Need to be sure to track/record the daily exchange rate(s) from your cash desk as well as what was used in the DCC transaction.
Ensure an audit trail exists when testing the DCC solution
Consider exposure in these areas as the exchange rate/fee is not refunded back and cannot be recouped.
Option 3: US Based Multi-Currency
Establish/maintain a process to sweep or hedge the funds in each account
If your company has expenses or other payables in other currencies it may be an option to monitor expected expenses and pay them through that currency account for payouts
Option 4: Local Acquiring
Maintain policies and procedures for intercompany transfers
Overall FX & Accounting: Strategies 2-4, you will need to track your foreign exchange (FX) realized gains and losses and report them on your balance sheet
Chargeback & Refunds:
Back Office Requirements
Pricing should consider drivers from marketing and finance discussion for how to price goods or services
Multicurrency pricing is easier for one time purchases and/or hard goods
Service companies, SaaS providers, and recurring billers it is more difficult. Need to be very mindful of FX considerations on pricing: Provide the option to pay in local currency recurring or in USD (different amount each month) Depending on the type of service sold, need to be comfortable with the FX risk
Have ability to reset prices monthly or quarterly for new customers- track what each customer is paying if the price fluctuates.
Often in service or digital good companies with big margins- the goal is to drive adoption and deal with the FX at a later date once more of the market is open
Market considerations on pricing- is there a local competitor taking market share? May want to be able to offer comparable customerexperience and pricing.
Pricing Strategies
After you are set up to handle other currencies…the next step is implementing local and alternative payment methods- which is the topic of our next Boot Camp!
So What’s Next?
