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Payments IQ Bootcamp #4 - Multicurrency in Electronic Payments / Market Opportunity or Headache? g

After increasing your Payments IQ in the first three boot camps, this webinar covers a hot topic in the online payments world: multicurrency processing. Whether selling digital or physical goods, companies are often tasked with weighing the increased cost and overhead associated with expanding in international markets against the potential for increased sales. ROI Payments will offer up a strategic road map on how to evaluate the payment opportunities available when serving international markets.

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Payments IQ Bootcamp #4 - Multicurrency in Electronic Payments / Market Opportunity or Headache? g

  1. 1. Brion Bonkowski Managing Director July 2, 2013 Boot Camp Week 4 Improve your Payment IQ Multicurrency in Electronic Payments: Market Opportunity or Back Office Headache?
  2. 2.  Back Office Requirements  Providers Matrix  What’s Next?  Q&A & Contact Information  Introduction  Who is Interested in Payments?  Why Multi Currency?  Multicurrency Overview  Deep Dive  Web Converter Tool  Dynamic Currency Conversion  US Based Multicurrency  Local Acquiring  Technology & Gateway Options Agenda
  3. 3.  Who is ROI Payments & Why a Boot Camp Series?  Who is interested in payments?  The end result? Introduction
  4. 4. So Tell Me…Why Multi Currency?
  5. 5.  US still largest ecommerce market but Europe, Asia, and LATAM are growing at a much greater pace  Global ecommerce market will surpass $1.35 Trillion USD by the end of 2013- just shipped goods- not services (hard to capture)  US Dollar only pricing on ecommerce sites more often than not leads to shopping cart abandonment; customers leave to:  Customers leave to check exchange rates and often don’t return  Go to a competitor’s local site  Studies show when online businesses price goods in local currencies, or provide an online currency converter, sales and revenue will increase in global markets considerably. Why Consider Multi Currency?
  6. 6. Regional Stats on Global eCommerce Behavior Explanation UK Germany Australia Canada Local Preference Prefer to make purchases from local websites 84% 69% 85% 82% Lost Sales Find products on USD site- then search for local site to order 86% 80% 68% 63% Conversion Rates Will leave USD only site to calculate daily rate 65% 43% 47% 39% Web Traffic Unlikely to revisit a site only offering USD pricing 49% 57% 26% 22% Increased Revenue Opportunity Likely to spend more money on sites in local currency 71% 64% 59% 53% Customer Experience Concerned with how much billed for FX 86% 76% 76% 39% Increase in eCommerce Expect to increase online shopping in next 12 months 63% 35% 70% 57%
  7. 7. Let’s Review the Various Options for Multi-Currency for US Based Online Businesses…
  8. 8. The Four Basic Options for Multicurrency Option Description Recommended Volume (in USD) to Consider Web Converter Tool Simple tool to display items in local currency as a reference <$10k/month Dynamic Currency Conversion (DCC) Present localized currency at time of transaction and settle in USD $10k-$200k/month US Based Multi- Currency Present localized currency and settle in localized currency in the US $200k-$2M/month Local Acquiring Present, acquire and settle transactions in local currency in local region $2m+/month
  9. 9. Multicurrency Option 1: Dynamic Converter Tool  This is basically just a multi-currency DISPLAY  Provides customers a REFERENCE for what the product cost is in local currency  At checkout, USD and local currency is displayed but transaction processed in USD Advantage: low cost option to enable additional data on their site an option for eCommerce Disadvantage: items are not processed in local currency so customers are subject to cross border fees, varying FX rates and the transaction does not feel local 0 1 2 3 4 1 2 3 4
  10. 10. Multicurrency Option 2: Dynamic Currency Conversion(DCC)  Transaction price dynamically changes based on the days’ exchange rate at the time of payment  Customer is presented an option to pay in their local currency (of the issued card) or in the merchant’s currency  Customers see the actual amount at checkout that they will see on their credit card statement  The exchange rate is provided by the processor to the merchant and includes a markup on the FX  DCC an be used in card present (retail terminals) or online  Transactions are settled back into the merchant’s home currency  DCC is regulated by Visa & MC and adheres to scheme regulations Advantages:  Easy to deploy  Way to “test international waters”  Can deploy up to 140 currencies Disadvantages:  The FX mark-up can be expensive  Customers can still be charged a cross border fee Note: Multi-Currency Pricing (MCP) is very similar to DCC – but instead of using the cards holders billing currency, it allows for the customer to choose which currency they prefer. MCP is not regulated by the schemes as it is a merchant re-pricing function not related to the card issued. 0 1 2 3 4 1 2 3 4
  11. 11. Multicurrency Option 3: US Based Multi-Currency  Presentment and settlement in a local currency to a domestic account  Limited acquirers can enable this option, a few of them being:  Only a handful of gateways support this functionality  Requires merchants set up multiple domestic bank accounts (one for each currency supported) and thus support this in their financial systems Advantages:  Good hybrid option  Lower fees than DCC  No international entities required Disadvantages:  Acceptance may be lower  Cross border fee still may apply  More back-office financial oversight and maintenance 0 1 2 3 4 1 2 3 4
  12. 12. Multicurrency Option 4: Local Acquiring  Establish acquiring relationship with a local banking institution and settle the funds to an account in that region  Best option for established businesses with high volume in particular regions  May require the establishment of a business entity in region  Typically- provides for the highest acceptance rates for cards, can be a lower transaction fee and allows for local schemes  No cross border fees for merchant or customer Advantages:  Lower transaction costs  Best card/scheme acceptance  True local feel Disadvantages:  Local entity required  Tax implications  More complex 0 1 2 3 4 1 2 3 4
  13. 13. Technology & Gateway Options  Technology: Merchants need to ensure that the shopping cart, billing system or custom code that runs their businesses can support multiple currencies  Ability to store and deal with foreign characters (UTF8)  Ability to store sale price, fx rate, actual settlement expected price, etc.  Report appropriately to the financial side of your business  Gateways:  Not all gateways are the same- need to consider what platform to invest in- especially if doing tokenization (even of not doing multi-currency)  SMB Gateways- completely US focused  Enterprise Gateways (small handful):  Multiple currencies  Multiple MIDS  Can do slides 2/3/4  Deal with localized acquiring, online pin debit, 3d Secure, etc  Gateway plus Acquiring: PayPal option or Global Collect- have integrated acquiring into their platform natively- PSP
  14. 14. Vendor Matrix Acquirers Processors Technology
  15. 15.  Option 1: Web Converter- little/no back office considerations  Option 2: DCC:  Need to be sure to track/record the daily exchange rate(s) from your cash desk as well as what was used in the DCC transaction.  Ensure an audit trail exists when testing the DCC solution  Consider exposure in these areas as the exchange rate/fee is not refunded back and cannot be recouped.  Option 3: US Based Multi-Currency  Establish/maintain a process to sweep or hedge the funds in each account  If your company has expenses or other payables in other currencies it may be an option to monitor expected expenses and pay them through that currency account for payouts  Option 4: Local Acquiring  Maintain policies and procedures for intercompany transfers Overall FX & Accounting: Strategies 2-4, you will need to track your foreign exchange (FX) realized gains and losses and report them on your balance sheet Chargeback & Refunds: Back Office Requirements
  16. 16.  Pricing should consider drivers from marketing and finance discussion for how to price goods or services  Multicurrency pricing is easier for one time purchases and/or hard goods  Service companies, SaaS providers, and recurring billers it is more difficult. Need to be very mindful of FX considerations on pricing:  Provide the option to pay in local currency recurring or in USD (different amount each month)  Depending on the type of service sold, need to be comfortable with the FX risk  Have ability to reset prices monthly or quarterly for new customers- track what each customer is paying if the price fluctuates.  Often in service or digital good companies with big margins- the goal is to drive adoption and deal with the FX at a later date once more of the market is open  Market considerations on pricing- is there a local competitor taking market share? May want to be able to offer comparable customer experience and pricing. Pricing Strategies
  17. 17. After you are set up to handle other currencies…the next step is implementing local and alternative payment methods- which is the topic of our next Boot Camp! So What’s Next?
  18. 18. Contact Information: Brion Bonkowski 212.812.4177 x: 2134 Questions & Contact Info