How can online business arrange accepting payments in foreign currency for foreign customers?

Acceptance of payments in foreign currency is relevant for any online business operating in the international market. But how exactly does global ecommerce-company provide its customers with the opportunity to purchase goods and services in the currency of different countries of the world without breaking the laws and losing the trust of customers? The team of our payment provider Fondy constantly solves similar problems of merchants and in this material we share our experience.

In the further description we will discuss only legal entities and individuals - entrepreneurs (IP in Russia and FLP in Ukraine). First of all, it’s worth deciding what problem the Internet entrepreneur wants to solve:

1. Provide an opportunity for foreign target audiences to pay in convenient currency
2. Receive funds to your bank account in “hard” foreign currency
3. Both at the same time: accept different currencies from payers and receive funds in “hard” foreign currency

Also, the option of finding a solution depends on which legal or natural person will be used: a resident of his country or a foreign one, such as the United States or Europe. Looking ahead, we can say that with the acceptance of payments to a Russian company, everything is a little more complicated than to a foreign one, and for a Ukrainian company it is almost impossible at all. Let's see why everything is so bad, and how you can solve these problems, at least in part.

To begin with, we will try to solve the first problem: to provide the foreign target audience with the opportunity to pay in their convenient local currency.

What are the options here?
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Option 1

Using DCC (Dynamic Currency Conversion) - technology provided by international payment systems Visa and Mastercard. Thanks to DCC, the purchase amount can be set in any currency convenient for the payer. In this case, the currency that he chose will be debited from the card of the payer.

If you often made purchases through PayPal, then you probably noticed that PayPal offers a choice of two purchase options:

1. In the currency of the online store, which is usually less profitable, since you can get to double currency conversion
2. In the currency of your card (DCC)

Another example is Uber. By launching its service in each new country, the company offers passengers to pay for purchases in their local currency. At the same time, the Uber financial company is located in the Netherlands and in most cases uses two international payment platforms for expansion into other countries: Braintree and Adyen. The DCC is also used here - Braintree and Adyen write off convenient passengers for the currency payer from the passenger card, while Uber gets all his money in the accounts in the Netherlands in a convenient currency.

This technology has its pros and cons.

Pros:

• the entrepreneur does not need to open currency accounts and carry out the related currency control and obtain a license from the regulator
• there is also no need to register a company in a foreign jurisdiction: all payments can be made to a resident company in local currency (ruble, hryvnia, etc.)
• wide range of available currencies for payers

Minuses:

• despite the popularity in other countries, the interest of Russian and Ukrainian banks in providing DCC solutions to online business, as practice shows, remains low. A very limited number of banks in Russia provides this service in the Internet acquiring package, although most processing centers are certified and support DCC. In Ukraine, unfortunately, there is no bank at all that would be ready to offer this service.
• conversion risks. If you often use the services of Uber, you may have noticed that sometimes the amount charged is a little more than what was announced. This is due to the fact that the rate of the local currency can fluctuate, and since it usually takes 2-3 days between blocking funds on the card and settling with the merchant, the rate can change significantly. Most issuing banks transfer these risks to their cardholders. If the currency of the card behaves unstably, then the debit amount may differ by 10-20%. This can cause a negative customer. For example, if you pay for goods in dollars, if the payer's card is opened in rubles, 1000 rubles are blocked on the account, and three days after the dollar rises sharply, the payment amount can grow to 1600 rubles. Also, some issuing banks may charge additional fees for DCC, although this situation is quite rare.
• the merchant never knows what the exact amount will go to his current account. All because of the same rate fluctuations. For example, the payer is billed in Kazakhstani tenge, the entrepreneur received this money in his account in rubles, and the acquiring bank made mutual settlements with the international payment system in euros in accordance with its internal rate. At the same time, the money is reimbursed to the merchant’s account not on the card authorization day, but after a few days. Therefore, due to possible fluctuations in rates, an entrepreneur never knows exactly how much money will go to his account.

Option 2

Currency conversion on the fly. This method does not contain any technology, but represents the approximate informing the customer about the purchase price from one or another online store in the local currency of the customer based on the Central Bank rate or any convenient commercial course.

For example, if an enterprise works in Russia, has a fixed ruble value of its services and issues an invoice to a foreign buyer in dollars, when paid, the buyer sees an approximate value in dollars, calculated on the basis of the current dollar to ruble rate set by the Central Bank. At the same time, the ecommerce company informs the client that the amount of the actual payment may differ. Thus, the payer sees the dollar for himself, the ruble is actually deducted from his card at the rate of his issuing bank, and the entrepreneur receives the exact amount in rubles that he billed to the client on the invoice. This model of work for online business is simple to implement, but its use can cause a negative among buyers, since the actual amount of payment will differ from what was originally stated within 10-20%, since it is almost impossible to predict in which currency the client’s account is opened and which the conversion rate will be applied by the issuing bank. In addition, the client will see rubles in his bank statement, but not his usual dollars.

Now we will try to solve the problem of receiving funds to your bank account in “hard” foreign currency.

There are also two solutions here.

Option 1

Opening an account abroad. In theory, the Central Bank of Russia and the National Bank of Ukraine allow their residents to open accounts in foreign jurisdictions. But the reality is that, for example, European regulators have recently very strongly tightened the requirements for companies wishing to open an account, and are more likely to refuse companies from the CIS. Taking into account the fact that the average cost of registering an enterprise abroad is 2,000-4,000 euros, the option of registering a company and opening an account for it looks more promising.

Pros:

• Foreign acquiring banks are much more willing to work with DCC and also offer a good choice of currencies to pay funds to the company.
• if the company works, for example, in the EU zone, the conversion risks are lower, especially if the conversion is within the European zone (the payer is also European)

Minuses:

• With this approach, the entrepreneur faces the task of choosing jurisdiction, form of organization, tax optimization, obtaining permission from the supervisory authority governing the business of a resident business abroad, and other tasks.
• Also, a business needs to find a foreign processing partner in the person of a payment provider or acquiring bank. Terms of cooperation with the processor are governed by an agreement that lists the currencies in which the company plans to accept payments. For example, in Europe, each bank has its own list of currencies that businesses can take to their own account. No hard limits. The main currencies, in addition to local: US dollars, euros and pounds sterling.
• one of the main difficulties may be opening a currency account. For example, in Europe, this procedure can take up to 3 months.
• Getting started with an acquiring bank can also be a very time consuming step. Foreign financial institutions conduct in-depth checks of potential merchant clients, including a summary of registered employees and utility bills confirming the presence of an office. According to our observations, over the past six months, checks of Internet businesses by foreign banks have tightened.

Option 2

Obtaining a currency license. With this model of work, an entrepreneur needs to obtain permission to accept foreign currencies from the regulator. Successful cases among online businesses in Ukraine and Russia are not known to us, since this is the most difficult option for business. In addition to obtaining a license, an entrepreneur will have to find an acquiring bank that is ready to refine its technical solutions for online acquiring. Due to the unpopularity of this model, banks do not see economic benefits in this type of refinement.

According to the experience of our payment service team, the most popular conversion method used by merchants is DCC through a foreign company and on-the-fly conversion for residents.

If you have your own online store accepting payments in foreign currency, share your experiences in the comments.

You can also read the link about the practical experience of an entrepreneur who was looking for a solution on the Russian market for his company.