E-Commerce: Optimizing Stripe fx with amnis
- International payments
The e-comerce sector is booming: According to eMarketer, global e-commerce grew by more than 25% in 2020, and by +17% again in 2021 to almost 5 trillion US dollars. eMarketer estimates that by 2025, every fourth consumer purchase on the planet will be done online.
Many online shops are taking advantage of this opportunity and are expanding globally, and many rely on the payment infrastructure of Stripe. This internationalization requires a clear strategy about how to deal with foreign currencies. In this article, we will show how Stripe users can optimize their handling of fx and thus improve their margins.
Going global? Think about your multi-currency strategy
The world is not only shopping more every year, but above all the online-shopping is more and more shifting towards cross-border transactions: in 2020, almost 35% of all online-buyers made at least one purchase outside their own country, compared to only 26% in 2014. To exploit the full market potential, it will therefore become increasingly important for e-commerce providers to position themselves globally from day one.
Merchants who are going global need a strategy on how they want to deal with different currencies. Three aspects must be considered:
- The currency of the consumers’ credit card,
- The currency of the payment, e.g., the currency that is shown during the checkout process, and
- The settlement currency in which the payment is finally transferred to the company’s bank account.
If the currency of a payment does not correspond to the currency of the credit card, customers likely will incur surcharges and high fx rates depending on the credit card provider. This leads to uncertainty on the buyer side, which can negatively effect the “cart abandonment rate”.
To optimize the cart-to-pay conversion, it makes a lot of sense to give customers the option to pay in their home currency and also displaying the prices in their local currency accordingly. In e-commerce, this is called localization.
How is Stripe handling fx?
Stripe is one of the leading online payment service providers and covers more than 135 international currencies with its checkout solutions. The currency conversion at the mid-rate makes the checkout-experience very attractive for the buyers. This solves the localization issue as described above in a very elegant way.
But beware: for the end customers the displayed exchange rates may be attractive, for the shops on the other side the cost can be very high and sometimes not very transparent, depending on the set-up!
Stripe users have the following three options to handle their foreign currencies:
- Stripe does the currency exchange and the merchants receive the payouts from Stripe in their home currency (standard process),
- Opening of a foreign currency account outside the corresponding currency area (e.g. a Swiss shop that opens a USD account with its house bank in Switzerland), or
- Opening of a local foreign currency account, e.g. a USD account that is actually located in the US.
All three options have different impacts for the merchants, let’s look at them in more detail:
1. Currency exchange by Stripe, payout in the home currency:
This is the default setting in Stripe: in the Stripe dashboard, a bank account in the home currency is added, to which all payouts are made. The payout interval can vary between 1 and 14 days depending on the age of the account, charge-back rate, volume, industry, and domicile.
In addition to exchange rate surcharges of up to 3%, an additional fee of 0.5-1% applies for the currency exchange. Together with the standard fee of 2.9% + the fixed amount per transaction, a whopping 7% of any sale may go to Stripe!
In addition, this adds currency risk in case of charge backs: If a purchase is cancelled after the checkout, the associated refund will be made in the customers local currency. Since the foreign exchange markets are constantly moving, this exposes merchants to an unnecessary currency risk.
Stripes’ standard option is expensive and also exposes merchants to currency risk caused by the fx fluctuations between the time of sale and the time of a possible charge back. It should therefore only be applied when payments in foreign currencies are the absolute exception.
2. Pay out of foreign currency to an account outside the currency area
In some countries, Stripe supports the ability to add foreign currency accounts from banks domiciled outside the currency area. For example, a Swiss merchant has the option of adding a EUR account with his Swiss house bank in Stripe.
The exchange rate surcharges can be avoided through this and also the currency risk will be eliminated.
However, Stripe charges an additional fee of at least 1% for these “alternative currencies payouts”.
An up-to-date overview of the possible additional foreign currency accounts per country and the associated costs can be found here.
In addition, foreign currency accounts at the house bank are usually relatively cost-intensive and the applied exchange rates are very often unfavorable.
3. Payout of foreign currency to a local bank account
Both the exchange rate surcharges and the additional fees charged by Stripe for a “alternative currency payout” can be completely avoided if an account is opened in the respective currency area, i.e. locally (e.g. a USD account in the US and a GBP account in the UK).
These accounts can be very easily added in the Stripe dashboard. However, traditional bank accounts abroad are a costly affair for small businesses, the opening and maintaining can be very time-consuming.
Receive money worldwide with amnis COLLECT
With COLLECT, amnis offers businesses of any size free business accounts in local currency areas. Currently, amnis can offer accounts in EUR, USD, GBP and CAD locally. These can be added in Stripe like a normal bank account and thus be used as a local payout account. This eliminates the exchange rate surcharges* for online retailers, eliminates currency risks in the event of a charge back, there are no additional stripe fees for “alternative currency payouts”* and costly foreign currency accounts with banks are made redundant.
*Please always check the latest terms and conditions of Stripe, which might be subject to change at any time.