The hidden costs of international ecommerce

  • 28 Dec 2020

By Gavan Smythe, Managing Director, iCompareFX

Global expansion is often the desirable goal for many aspiring organisations – with those fortunate enough to find themselves trading on the world’s stage able to take advantage of access to new markets and consumers, more affordable manufacturing and more.

Despite this, it isn’t as simple as just sending products across the globe. A great deal of planning is needed before going to market, in order to establish brand reputability and assemble a cost-effective supply chain.

 

Those looking to make the most of overseas opportunities must navigate the minefield of hidden costs and avoid the common pitfalls of international trading.

Payment peace of mind

Trading online means the inevitable exchanging of personal bank details. If the third-party facilitating that exchange lacks the proper payment protections, the customer is at risk of theft and fraud.

This is where the ‘gateway model’ comes in. It not only acts as a safeguard against fraud but secures transactions by encrypting customer details and handling the entire process for the seller.

However, merchants must pay for these specialist services – and they aren’t cheap. The provider takes a percentage cut of every transaction. And while it’s a worthwhile investment for SMEs – giving them the protection needed to avoid the damaged reputation of being seen as an unsafe seller – it’s often a surprisingly hefty outgoing for larger vendors.

 

When evaluating gateway services, consider the region and any necessary set-up fees, to help identify which service and payment plan makes the most sense for the business.

Calculating payment gateway fees

Payment gateway providers apply fixed per transaction and multiple variable transaction fees. How these fees are calculated when selling in foreign markets is notoriously complicated compared with operating solely in domestic markets.

International online sellers are subject to additional ‘non-domestic’ card fees and then, more often than not, locked into high currency conversion costs when repatriating their revenue.

Additionally, selling internationally bears the additional burden of currency conversion fees – exchanging the payment into the merchant’s base currency.

Businesses shouldn’t rush into decisions when choosing a provider. While financial factors – including exchange rates and which currencies and regions the provider operates in – should be considered, they aren’t the be-all and end-all.

As with any business commitment, it’s wise to consider reputability and customer service. Some businesses may be willing to pay over the odds to invest in a service which provides round-the-clock support.

For those moving into multiple markets, it’s unlikely a single provider will offer the most cost-effective and efficient service for every market, so consider using a comparison service to ensure the most suitable provider in each target region is utilised.

 

Multi-currency accounts

With traditional currency conversion rates threatening to chip away at a business’ revenue, directors must understand how to offset some of the costs.

Managing a multi-currency account allows businesses to take advantage of speedier transactions attracting lower exchange rate margin fees, compared with transferring through a bank. And because the rates are considerably lower, businesses can be more dynamic with additional revenue in their pockets.

However, before opening an account, businesses should review customer and supplier locations and define future customer markets, as some providers may not offer access to every currency to deliver consistently efficient and cost-effective transfers as the business grows.

Conducting an internal risk assessment helps businesses decide which multi-currency account makes sense for them, based on key requirements, like the number of supported receiving account currencies, supported destination countries, and provider trust.

Taking a supply chain international

Global ecommerce is a surprisingly complex undertaking. Sourcing and orchestrating an overseas logistics team needed to efficiently ship products is only the tip of the iceberg for successful global enterprises.

Getting the best results also means working alongside local PR, advertising, and marketing teams with region-specific knowledge to enhance a product's appeal while being culturally aware. It may also mean partnering with local logistics and manufacturing teams with key regional contacts and knowledge of the region’s geography, to assist with transport and delivery.

 

In these cases, the business becomes the customer. They are required to make payments in multiple currencies as they manage their global operations.

Many businesses even choose to set up smaller-scale international supply chains in their respective locales to avoid the hefty fees issued by UK banks to make payments in various currencies, as these costs quickly add up.

Businesses able to identify all these costs and admin fees up-front will be best placed to get the most value from the research and comparison stage when comparing specialist money transfer companies. Ultimately, they’ll achieve the lowest possible fees for each market, currency and transaction.

 

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