By Nikhita Hyett, Managing Director – Europe at BlueSnap
Online shopping has been a lifeline for many during the pandemic. But with the increased volume of online orders, one area that’s been overlooked is the importance of local currency options.
As more transactions are made on mobile devices, customer service channels proliferate and social media becomes a popular sales channel, merchants around the world are closer to their customers than ever before.
But this increased proximity doesn’t always translate when customers hit the buy button.
When shopping online, I’m often shown ads from businesses who sell to me and ship to me, yet their pricing is in euros or US dollars. We hear a lot from sellers about offering a personalised customer experience in the age of e-commerce, but a failure to make the transaction feel local is holding them back.
In fact, it still surprises me how many merchants don’t offer customers the ability to pay in their local currency, even though this move could increase their conversions by an average of 12% according to BlueSnap data.
Any online business would agree that the checkout process is the most important part of the purchase journey – and should be as a simple and painless as possible.
But when presentment currencies, or the currency a customer is charged in, differs from that of their local geography, buyers are often left confused and struggling to calculate costs when making a purchase from an international seller.
This prompts shoppers to leave the checkout page to convert costs – creating a major barrier to sale at the point of conversion. Friction enters the buyer’s journey, and businesses see an increase in purchase abandonment.
Disputes and chargebacks
Even if a customer perseveres with the transaction, that’s not always the end of the story. Another major benefit of offering local currency payments is that customers are less likely to challenge the final total of cross-border transactions.
But if there’s confusion around exchange rates, customers are entitled to dispute the transaction with their bank, which can result in a lost sale in the form of a chargeback fee for the vendor.
This is a lose-lose for sellers which not only miss out on revenue due to increased purchase abandonment but also post-purchase disputes around order settlement.
If that wasn’t enough, buyers who have encountered friction in the purchase journey are unlikely to be satisfied with their experience, deterring them from making repeat purchases, recommending the business or leaving a positive review.
Brexit and cross-border fees
But going truly local extends beyond currencies and the customer experience – and can have a big impact on a company’s bottom line. In a post-Brexit world, businesses can take the localisation of their payment processes a giant leap further through local acquiring.
Following the introduction of new trading laws for cross-border sales in January, Mastercard has announced that it’s hiking interchange fees for UK merchants fivefold for all online purchases made by EU cardholders.
The increase will see interchange fees between the UK and the European Economic Area (EEA) rise from 0.3% to 1.5% – with these transactions now defined as ‘inter-regional’ – and other banks likely to follow suit.
In practice, this means UK merchants will now have to pay a higher proportion of the sale to the payments provider for enabling cross-border transactions within the EEA, and vice versa, reducing profit margins on every purchase.
At a time when retailers are already having to adapt to new regulations and Brexit ‘red tape’, they now face another unenviable choice. Absorb these increased costs or pass them on to customers by raising the price of products or services – a move that could deter future sales.
Avoiding interchange fees
But there is another way. E-commerce sellers can avoid cross-border fees altogether by routing payments through local banks in the same region as the cardholder.
By localising the transaction, it’s estimated that merchants can reduce cross-border fees from card issuers by 1% – meaning a total saving of £100,000 for every £10 million in sales.
Of course, if this were simple, the debate over cross border fees would be long over.
To process a transaction locally requires merchants to have a legal entity in each region they sell to. This used to mean that the more online business a retailer does, the more connections they need and the more complex this process becomes.
On average, international sellers have five different payment gateways to route cross-border transactions via local banks – with the costs of developing and maintaining this infrastructure able to quickly outweigh the savings of processing payments locally.
A better way
Thankfully, new technology is changing all that. With the next generation of fintechs ‘rebundling’ financial services under one roof, forward-thinking businesses are taking advantage of all-in-one solutions that automate payment routing via a network of local acquiring banks.
By harnessing innovative payments technology, which automatically recognises card types, location of issue and local currency, merchants can effectively localise any incoming payment from any customer, anywhere in the world – through a single integration.
In doing so, they’re also able to increase payment authorisation rates, as banks are more likely to approve purchases made locally.
With e-commerce experiencing its strongest growth in over a decade last year, merchants understandably want to embrace the opportunities brought about by this exciting shift in the way we buy and sell goods.
As the rise in online sales shows no sign of slowing down, those businesses that offer local currency payments can transform the customer experience and increase conversions, while merchants that embrace local acquiring will make their bottom line soar.