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In today’s globalized market, more and more companies are navigating the opportunities and challenges of doing international business. For those continuing to scale, there comes an increased complexity with currency and regulations. As international trade and e-commerce continue to rise, companies must cater to customers from diverse corners of the world.
The need for multi-currency, seamless payment processing has become paramount. In this article, we explore the concept of multi-currency payment processing, a dynamic system that empowers companies to accept and manage cross-border payments worldwide.
What is Multi-Currency Payment Processing?
Multi-currency payment processing enables a business to accept and process payments in different currencies from global customers. With the growth of e-commerce and the globalization of new markets, companies often encounter international customers who mostly prefer to pay in their local currencies.
Multi-currency payment processing streamlines these transactions by offering organizations a localized and seamless payment experience. This is done through payment rails and other forms of multi-currency payment gateways.
How Does Multi-Currency Payment Processing Work?
When a customer purchases a foreign currency, the payment processor converts the transaction amount from the foreign currency to the merchant’s base currency or the currency in which the company operates. This first step, called currency conversion, is typically done at the exchange rate.
The customer is then shown the total amount they will be charged in their local currency before completing the purchase. This type of transparency is critical to building trust and preventing surprise currency conversion fees or exchange rate fluctuations.
Merchants can establish a payment gateway to accept payments in various currencies. This enables the customer to pay in their preferred currency during checkout.
Typically, payment processors will offer exchange rate management tools that allow merchants to set an exchange rate markup or margin. The extra fee can then be applied on top of the prevailing market exchange rate. This helps a business cover the currency conversion costs or potential risks associated with fluctuating exchange rates.
After the currency conversion, funds are settled in the merchant’s base currency. The company can then retain the funds in that currency or convert them to their local currency.
Steps Involved in Making a Multi-Currency Payment
A series of steps are involved in making a multi-currency payment and ensuring the transaction is completed accurately. The general outline is as follows:
#1) Select the Product or Service
The cycle begins when you select the product/service needed. Ensure the merchant supports multi-currency online payments and offers the option to pay in multi-currency transactions.
#2) Choose the Currency
The customer should be given the option to choose their currency on the website or payment page. Select your local currency, home currency, or any other acceptable international currency from the available options.
#3) Currency Conversion
Once the currency is selected, the payment gateway will calculate and display the converted amount in the selected currency. This total amount is based on the current exchange rate and any fees the merchant or payment processor sets.
#4) Review the Total
Before proceeding, review the total amount to be charged in the selected currency. Ensure you understand any additional fees, like international charges or currency conversion fees.
#5) Select Payment Method
Choose the preferred payment method, such as debit or credit card, PayPal, wire transfer, global ACH, or other best ways to pay overseas suppliers. Ensure the method you choose is compatible with multi-currency payments.
#6) Provide Payment Data
Enter the payment information required by the selected payment method. This typically includes everything from card details to your bank account, billing address, or phone number.
#7) Process the Payment
After submitting all data, the system accepting payments will process the transaction in the selected currency. Multi-currency processing involves communicating with other banks and card networks to authorize and complete payment. This is the responsibility of the processing solution you choose.
#8) Payment Authorization
Once the payment is authorized, the payer will receive a confirmation message indicating the transaction is complete. The funds will then be deducted from your bank account in your local currency, and the merchant account receives it on their end in the converted amount.
#9) Settlement
The payment processor will settle the funds with the merchant, converting the received amount back to their base currency at the agreed-upon exchange rate. The time it takes for settlement may vary depending on the amount and where the funds are headed.
#10) Receipt and Confirmation
The final step is to receive a payment receipt or confirmation from the merchant indicating the transaction details, amount, and transaction ID or confirmation number.
It should be noted that specific steps and procedures vary depending on the payment processor, payment gateway, and the merchant’s setup. It’s important to always verify the details before completing the transaction to avoid any potential issues.
Common Challenges of FX Payments
As globalization evolves, more companies must figure out cross-border payment logistics. 89% of businesses solely rely on their payables team to manage cross-border foreign exchange processes.
Today’s finance teams are expected to make payments to suppliers worldwide in various currencies. For some companies, effective supplier relationship management means operating bank accounts in multiple currencies and having enough money in these accounts to cover the entire pay run.
Similarly, businesses with multiple subsidiaries often need to fund diverse geographic business sectors to make local currency payouts (for taxes, payroll, or general expenses).
Forex burdens like these can cost finance leaders valuable time that could be otherwise spent on high-impact, strategic initiatives. This is especially the case for lean, hyper-growth organizations, where managing currency and forex takes a lot of work to sustain as they grow.
Some common challenges for FX payments include:
Hidden Costs
The cost to convert funds can be unpredictable and is often a spot conversion rate. For an individual business, these fees can add up over time.
FX payments typically come with hidden costs like bank charges, currency conversion fees, and intermediary bank fees. These fees can reduce the overall value of the payment and may only sometimes be disclosed to all parties involved.
Exchange rate fluctuations are constantly shifting. This is due to a variety of economic and geopolitical factors. These changes will affect the final payment amount and can introduce uncertainties for the payer and recipient.
Operational Complexities
Due to the sensitive nature of transferring funds, senior finance leaders often manage forex functionality. However, this isn’t a job that maximizes their time or skillset. FX payments require additional processes like currency conversion, accounting adjustments, and reconciliations.
These operational complexities add another administrative burden and increase the risk of errors. Additionally, conversions require an “on-demand” mentality, making it harder to employ a strategic approach.
Risk Management
FX payments often expose both parties to currency risk. If the exchange rate moves unfavorably between the time of initial payment and settlement, one party may end up with a lower-value transaction than expected. Exchange rate volatility and currency fluctuations will directly impact profits and cash flow.
Cross-border payments also increase the risk of security breaches and concerns. Cybercriminals may exploit weaknesses in the payment process to authorize transactions fraudulently.
Foreign Banks
Dealing with foreign banks creates a complex business relationship. There can be miscommunications, timing lags, and language barriers. Plus, some banks will add extra service fees on top of conversion fees for all parties involved.
There can be a need for more transparency in the FX market, and part of that is due to the hidden fees intermediaries charge.
Slower Speeds and Failures
International FX payments can take much longer to process than domestic transactions. Delays occur due to intermediaries and multiple banks in the payment chain.
Cross-border payments are also subject to increased scrutiny and a higher chance of rejection by banks, especially if the transaction triggers fraud alerts or raises compliance concerns.
Additional Challenges
- Limited Currencies: Some payment systems only support a narrow range of currencies, limiting options for cross-border payments.
- Regulatory Compliance: Different regions and countries have varying restrictions and regulations on international payments. Ensuring compliance with these regulations can be complex and time-consuming.
- Payment Tracking: Tracking the status of FX payments is challenging, especially with multiple intermediaries involved. This lack of visibility leads to delays and uncertainty in resolving payment issues.
Is FX management becoming too complex?
Automation helps to eliminate challenges and streamline payments.
Using Automation to Streamline Multi-Currency Payments
Managing multiple banking relationships for entities that are strictly cost centers (don’t generate revenue) adds unnecessary complexity for any business with global subsidiaries.
International accounts payable tasks require smart automation with seamless global remittance systems. This eliminates the need to maintain regional bank accounts solely for payouts and provides a central virtual account to manage payments across all subsidiaries, currencies, and methods.
A global payment automation system helps improve your spends predictability and gain insight into costs while reducing exposure to fluctuations. It plays a crucial role in streamlining multi-currency payments, making the process more accurate, efficient, and cost-effective.
Here are a few constructive ways automation can be used to streamline multi-currency payments:
Effortless FX
Multi-currency payment processing solutions like Tipalti help businesses efficiently manage FX volatility risk and multi-FX activities. If you don’t have enough funds in your local operating account to cover payment runs or payroll, there’s no need to make an emergency bank run to purchase foreign currency.
Tipalti can help:
- Execute payments
- Fund a virtual account in your preferred currency
- Convert to a local currency
Implementing an automated currency conversion system ensures payments are always processed with the most current exchange rates.
By integrating with reliable APIs or services, companies can automatically calculate and display the converted amounts for customers during checkout.
Rate Locking and Dynamic Pricing
Automation enables a business to offer dynamic pricing based on real-time exchange rate fluctuations. Some systems also allow rate locking. This is where customers can lock in an exchange rate for a limited period of time. This prevents any potential rate changes before payment is completed.
Billing and Invoicing
Automated billing and invoicing is another benefit of multi-currency payment processing software.
For companies dealing with recurring payments or invoicing in different currencies, automation tools will generate and send invoices in the appropriate currencies based on predefined rules set ahead of time. This reduces manual errors associated with currency conversion and saves a ton of time.
Reconciliation and Settlement
Streamline the settlement process by automatically converting payments that are received in different currencies into the merchant’s local currency. This simplifies accounting and reconciliation, reducing the need for manual work.
Currency Hedging and Risk Management
Advanced automation programs have currency risk management tools, enabling businesses to hedge against exchange rate fluctuations. By automating hedge strategies, companies protect themselves from adverse currency movements and can better predict cash flows.
Seamless Integrations
Integrating multi-currency payment solutions into e-commerce platforms, ERPs, and other systems, offers a seamless experience for international customers, enabling them to pay in their preferred currency without leaving your site.
Regulatory Compliance
Automation ensures ongoing compliance with international payment regulations by verifying transaction details, flagging suspicious activity, and running the necessary reporting.
Additional Benefits
- Custom Payment Options: Helps companies customize payment options for customers with various international payment laws.
- Reduced Manual Labor: Minimizes the need for manual intervention in the payment process, saving time and reducing errors.
- Payment Tracking: Provides real-time payment tracking for customers and merchants, avoiding delays and proactively resolving issues.
Leveraging automation in multi-currency payment processing significantly improves accuracy, efficiency, and customer experience, making it an important tool for organizations operating in a global market.
Multi-Currency Payment Processing FAQs
What is a multi-currency account?
Unlike traditional bank accounts denominated by a single currency, multi-currency accounts allow users to receive, transact, and store money in a variety of currencies like USD, GBP, AUD, EUR, and JPY.
Key features of a multi-currency account include:
Currency conversion
FX hedging
Accounting
E-commerce
Depending on the provider, some multi-currency accounts may also have a minimum balance requirement or maintenance fees.
What is a multi-currency cash passport?
A multi-currency cash passport is a prepaid debit card; in which you can load and hold multiple currencies. It’s a convenient and secure way to hold foreign currencies while traveling abroad. The card is usually issued by banks, financial institutions, or currency exchanges and is widely accepted at various merchants, ATMs, and online platforms (just like a Visa or Mastercard). It’s one of the smartest and safest ways to travel internationally, locking in exchange rates with PIN protection and top-notch security features.
Are cross-border payments the same as multi-currency payments?
Although cross-border payments always involve different currencies, not all multi-currency payments are cross-border transactions. That’s because different countries have other monetary systems.
Multi-currency payments can occur within a single country if the two entities transact in different currencies, such as a business with international customers or suppliers.
Summing It Up
Multi-currency payment processing tools facilitate international business faster than ever, making it an indispensable tool for organizations navigating the complexities of a global marketplace.
By offering customers the option to transact in their preferred currency, companies boost satisfaction, enhance the user experience, and establish their brand in international markets.
Innovative multi-currency payment solutions like Tipalti unlock new growth opportunities, opening doors to a broader customer base and increasing revenue streams.
As financial technology continues to advance, the world becomes increasingly interconnected. Embracing multi-currency payment processing software now is a strategic imperative for organizations looking to thrive in an expanding global economy.
Ready to get started paying global suppliers? Download our latest ebook, “How to Eliminate Currency and Forex Challenges in Payable,” to avoid pitfalls.
