Global eCommerce continues to rise with no sign of slowing down. eMarketer predicts that the market will total $4.89 trillion in 2021. So, working with international payment processing is something all eCommerce businesses will need to contend with if they want to stay competitive.
According to recent reports, global eCommerce grew 21% in 2020, with 55% of online shoppers making cross-border purchases. While borderless business was great for eCommerce brands, international payment processes also produced new headaches for both consumers and businesses.
A Complicated but Necessary Process
International payment processing can be extremely complicated. Accepting payments across borders means dealing with cross-border fees, currency conversions, local regulations, foreign exchange fees and choosing an international payment gateway from hundreds of provider choices.
For eCommerce businesses who may be new to the international game, learning about and adapting to international payments can be an enigma wrapped in a riddle. Let’s attempt to unravel the mystery by looking deeper into some of the aspects of the international payment process.
What Are International Payments?
International payment transactions link companies, customers, banks and settlement institutions operating in at least two different countries with different currencies. They are also known as cross-border payments or global payments. Because every country has its own set of economic rules, varying scenarios need to be accounted for before a merchant can start dealing with international payments. But, before eCommerce businesses even get to that point, they need to establish an international payment gateway.
Why Do Businesses Need an International Payment Gateway?
A payment gateway is software that allows businesses to confirm and accept a customer’s credit or debit card details. This must-have helps authorize payments and facilitates smooth transaction management. Even after having a payment processor and a merchant account, a merchant will not be able to receive payment without a payment gateway.
Businesses that take international payments need an international payment gateway that offers global or multi-currency payments, has a keen grasp of international economic practices, and offers an interface in multiple languages. Fortunately, merchants can choose from a wide range of providers who offer excellent domestic and international gateway services at affordable prices.
How Do International Transactions Complicate the Payment Process?
In order to fully grasp how international considerations complicate the payment process, it helps to understand how the typical payment gateway process works.
- The Customer Placesan Order
A customer uses a credit card to place an order online. The merchant’s website then uses a payment gateway to validate the order and begin the payment process. At this point, the payment gateway will often send the details through a third-party fraud protection system to check for possible fraud.
- The Payment Processor Processes the Transaction
If the transaction passes a fraud check, the payment gateway sends the transaction details to a payment processor. The processor accepts the payment and settles and clears funds. A payment processor acts as an intermediary between merchants and financial institutions. A processor can authorize transactions and help merchants get paid by facilitating the transfer of funds.
- The Issuing Bank Approves or Denies the Transaction
The payment processor sends payment details through the credit card network to the bank that issued the customer’s credit card. Here’s where fees start adding up, as the card network will take a percentage of the total transaction as payment for serving as an intermediary. This fee varies based on several factors, like card type and purchase type.
- The Bank Charges the Customer’s Account to Complete the Transaction
If approved, the bank charges the customer’s credit card account and forwards the funds to the merchant’s bank through the card network, minus any fees to cover costs. This process is typically completed in two to four business days.
When you add in the international considerations mentioned earlier to even the most straightforward transaction, it’s easy to see why the international payment process can be so fraught with complications.
Considerations for payment tracing and identification add to the complexity, as well as foreign taxes, which include value-added taxes and customs duties. Hidden costs from sources like payment processors, card networks, issuing banks and acquiring banks and the always-shifting nature of foreign currencies also present challenges. All of these roadblocks make international transactions more expensive and slow down the process.
5 Ways eCommerce Businesses Benefit from International Payments Gateways
eCommerce companies should not let the roadblocks and risks deter them. Besides helping a business expand into the global marketplace and gain access to a broad new customer base, having an international payment gateway in place has several benefits:
Reduced Cart Abandonment Rate. When customers don’t have payment options available in their local currency (and language) they are not likely to make a purchase. Having an international payment gateway makes it easier to complete orders and process payments from overseas customers. Offering customers the flexibility to make payments in local currency can lead to lower cart abandonment, increased sales, better conversion rates and higher profits.
Better Customer Trust and Loyalty. Card providers will not charge customers additional international transaction fees if their credit card is processed in their local currency, saving the customer money and earning your business valuable customer trust and loyalty. It also reduces calls to customer support who would have to explain that the bank that issued the credit card charged the fees and not your business.
Lower Credit Card Decline Rate. Credit card payments made in the local currency for which the card payment was issued have a lower decline rate because card-issuing banks are not likely to view the transactions as potential fraud. Customers are more likely to engage with a brand when they know transactions will be smooth and trouble-free.
Reduced Chargeback and Refunds. Having the total payment amount clearly displayed and discernible in a customer’s local currency eliminates ambiguity as to the exact price of a product or service. This greatly reduces refunds and chargebacks. This type of transparency will also help build customer loyalty and boost future engagement.
Best Practices for Smoother International Transactions
While the roadblocks to smooth international transactions may seem daunting, the rewards of setting up international payment processes are well worth the effort. Adopting a state-of-the art enterprise payments architecture in combination with proven industry best practices is the best way businesses can streamline the payment process. It also achieves better efficiency, control, customer experience and profitability. Here are a few helpful tips:
- Make your company look more local by working with a specialist payments service provider to receive payments in a customer’s local currency. Even if a business is not in a certain country, following localization best practices can make it look like it is.
- Implement an enterprise payment architecture that is capable of creating industry-standard, bank-specific and nation-specific payment formats.
- Understand local rules, and be sure to have the required documentation for cross-border payment in countries with controlled or restricted currencies and central bank reporting, especially in large markets like China, India and Brazil.
- Open multiple currency bank accounts to control how and when exchanges are made, eliminate conversion fee and establish balances that can be used for future payouts.
- Be clear on payment instructions by using exact payment information to avoid returns, delays and extra costs. For more streamlined European payment processing, always use a complete International Bank Account Number (IBAN).
- Work with an experienced and international-savvy provider who can manage worldwide logistics and offer international expertise and advanced global features like shipping, special pricing, currency and language for each geographical market.
While this overview gives eCommerce businesses a basic idea of what to expect when working internationally, there is still a lot they should know before jumping into the overseas pool. Businesses are advised to do deep research and have all the key pieces in place before they embark on that journey. For more helpful advice, be sure to check out the International Trade Association and the U.S. Commerce Department.
Need even more info on how Scalefast can help eCommerce businesses sell across borders? Our informative International Payment Processing document describes how Scalefast can act as a Merchant and Seller of Record and help businesses overcome international headaches.