Given the ability to reach any market on the planet via the internet, a small business in Brazil or Canada can target customers in China or Europe. However, for many the management of currency exchange has traditionally made global sales a non-starter.
Over the last decade, the landscape for international payments has changed dramatically. Ten years ago, international banks and credit card companies ruled international payments and would-be global entrepreneurs had to either have sufficiently large business to attract the best pricing from those financial institutions or pay through the nose for service. Today, however, technology advances in payments have shattered that oligopoly forever.
Modern Global Payment Solutions
Amazon was part of starting it all. The company allowed small businesses to join its network of sellers from any country and make sales to any country, receiving payment in their own currencies while allowing customers to pay in theirs. Amazon managed these international payments themselves by building an internal payment infrastructure, most of which was outside of the banking system. In recent years, hundreds of international payments solutions providers have sprung up using similar technology, such as gointerpay.com, Payoneer, Global Payments Direct, Elavon, and Alipay and Tencent, the behemoths from China. There are many others springing up from every corner of the world, and this trend will likely continue.
So, what do these companies actually do for you?
Offloading your International Payment Headaches
- The most important point is that wherever you are, you receive sales revenue in the currency you want despite the currency paid by your customers. As such, you can literally market to virtually any customer on earth, at least in the roughly 200 countries and 150 currencies covered by most payment services. Here’s how it works:
- You offer your product or service in your home country currency.
- Your payments solutions provider will convert your prices into foreign prices for customers outside your country via local versions of your website with prices in that foreign currency.
- As the currency exchange rates change, neither you nor your customer needs to worry.
- If your customer purchases something from you and then decides to return it, your payment provider has already managed the price risk for this sale, so even if the exchange rate has changed, your customer gets the same amount back that they paid and you need to return the same amount you received.
- Your payment provider manages this risk via the foreign exchange derivative markets, using swaps and options to ensure that neither you nor they take a loss. This process is called hedging and it is the original purpose of derivatives. The cost of hedging is built into the price difference your payment provider offers you versus the price they receive from your customer in the foreign currency.
- Global payment providers, since they manage so many payments in the currencies they offer, achieve economies of scale and so the price differential is much less than you would pay if you tried to do the same yourself.
- Crucially, your payments provider will also manage the international tax implications for your sales. This is a major headache out of the way for you!
If you feel like your business would have international appeal, you shouldn't hesitate to contact a few global payments providers to get quotes on the cost of their services. You could be sitting on the next Amazon and not even know it!