As ecommerce can go beyond borders, internationally trading merchants could be dealing with the challenges of managing different shopping and settlement currencies. Merchants need to take that into account when setting up their online shop and selecting their Payment Service Provider and card acquirer. Besides the capability of the payment platform, it is also the payment method itself that determines whether it can be processed and settled in different currencies.
Merchants can choose between several solutions to be able to offer different currencies on their website. We distinguish the following solutions:
1. Multi-currency processing (Cards)
Multi-currency processing refers to the situation whereby the merchant is capable of processing and settling different foreign currencies through its Payment Service Provider and card acquirer connection, whereby the merchant's website is capable of automatically adjusting their pricing into the shopper's home currency (triggered by IP/country/browser language recognition).
Especially card payments from the international schemes such as MasterCard and Visa allow merchants to authorize payments in almost every currency used around the globe and being settled in around 14 settlement currencies (including USD, CAD, AUD, CHF, GBP, EUR, SGD, NZD, ZAR, HKD, JPY, DKK, SEK, NOK). In addition, other currencies like Polish Zloty (PLN) and Hungarian Florint (HUF) can be settled as well but require more specific set-up by the card acquirer (requires local bank account settlement). Some authorization currencies (which are not supported end-to-end: authorization currency is not the same settlement currency) will be settled by the scheme to the acquirer in one of the base currencies (for example euro, US dollar or British Pound). The scheme, and often also the acquirer, will apply a mark-up for these non-end-to-end transactions.
If the merchant requires settlement of those specific transactions in another currency and conversion needs to be done by the acquirer, a mark-up will be applied. (generally between 0.5 and 2.0%). Please note that not every card acquirer supports multiple authorization currencies or settlement currencies by default.
Three possible situations:
- Merchant processes currency A, B and C and requires settlement in currency A: the schemes will apply a mark-up to those non-end-to-end currencies (in this case in the situations B > A, and C > A).
- Merchant processes currency A, B, C and requires settlement in A, B and C ("Like for Like"). As long as the settlement currency is supported by the scheme and acquirer, no mark-up will be applied (end-to-end currency settlement)
- Merchant processes currency A, B, C, X, Y, Z whereby A-C requires settlement in A, and X-Z in B.
2. Multi-Currency Pricing
Multi-currency pricing refers to the situation whereby the merchant is capable of processing and settling different foreign currencies through its Payment Service Provider and card acquirer connection, whereby the shopper is able to select its preferred currency on the merchant's website upon entry.
3. Dynamic Currency Conversion (DCC)
Dynamic Currency Conversion refers to the situation whereby the shopper is offered a choice at the moment of payment to pay in either the home currency of the merchant or the shopper's home currency. This offer is instantly generated by the PSP platform (often in conjunction with an DCC provider), as the DCC software recognizes the home currency of the shopper based upon the first six digits of the card, and results in an conversion wherein a mark-up has been included. If conversion can be applied depends on the fact whether the DCC provider supports currency conversion for a particular currency (otherwise the transaction is authorized in the merchant's home currency).
Under DCC regulation the mark-up applied (generally between 2 and 4%) should be clearly visible for the shopper and it should be up to the shopper to make a choice (no opt-out allowed). The DCC mark-up (2-4%) can be shared between the merchant, Payment Service Provider, DCC provider and acquirer. DCC allows merchants to mitigate processing costs by earning back some of the commission if the shopper's decides to pay in their home currency.
DCC process (example):
- . Canadian shopper purchases products priced in euros and enters payment page
- . Shopper enters his card details. The DCC software instantly recognizes the shopper's origin is Canada based upon the first six digits of the card (this is called BIN-country recognition).
- . The shopper is offered to pay in euros or in Canadian dollars (CAD), whereby the CAD amount includes a mark-up (~3%)
- . The shopper chooses and the payment is either processed in euros or Canadian dollars.
- . The 3% mark-up is split between the DCC provider, acquirer and merchant (normally equally shared 1%-1%-1%).
- . The merchant receives his DCC commission from the acquirer.
4. FX conversion
In some cases the acquirer is settled by the card schemes in a particular currency, but the merchant requires a different currency settlement (which is not supported by the scheme or acquirer). Some acquirers are able to offer a FX conversion service which allows for currency conversion and settlement of funds. The acquirer will charge a conversion service fee (often a commission/percentage).
Role of Payment Service Provider and acquirer
Merchant should take into account the following with regard to foreign currency processing: