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The globalization of business is a complex but usually promising strategy. Entering the international market involves new challenges. For example, the need to customize online payment systems taking into account international standards, legislation, and regulations. Let's consider approaches to accepting international payments on a website and the tools that should be used in this process.
How online international payments work
The process of accepting international payments works as follows:
Payments made from foreign citizens' cards are classified as cross-border. Organization of such transactions for service provider is more expensive. The cost is determined by many factors, including the type of payment system and country of the issuing bank.
International payment systems, such as VISA and MasterCard, have divided the world into regions and assigned certain groups of countries to each region. According to this division, all foreign card payments can be divided into two categories:
- Intra-regional payments. These are transactions between countries that belong to the same region. For example, Eastern Europe, Ukraine, Africa, and the Middle East are united into a single payment region. If a customer from any of these countries pays for a purchase in a Ukrainian online store, the transaction is considered an intra-regional one, and the commission for it may be lower.
- Interregional payments. These are transactions between different payment regions. For example, paying in a Ukrainian online store with a card from a German bank. Usually, such transactions are subject to a higher fee.
Difficulties in making international online payments
There are several challenges to making international payments. Most providers, although they can accept cross-border payments, block this option by default due to the high cost of transactions and the risk of fraud associated with you're gonna have to pay stolen card data. To organize the acceptance of international payments on the website, a company needs to coordinate several issues with the bank:
- Justify the need to accept international payments and try to predict the volume of cross-border transactions. However, the bank may refuse to do so, reserving the right to make a decision.
- If the bank agrees, it will calculate an average interest rate for processing transactions based on the number of payments.
- The bank can also set limits, for example, limiting the share of payments from foreign cards in the total volume of transactions to a certain percentage in favor of the business. This helps to protect against an unforeseen increase in the volume of payments. If the limit is exceeded, the bank reviews tariffs and raises rates.
It should be noted that not all providers accept interregional payments under the same scheme. Some operators offer international payment processing for businesses at separate rates with fewer restrictions.
Converting international online payments
Accepting foreign payments usually involves a currency conversion process. It is important to check with the provider in advance which currencies they work with. If you plan to set prices for customers in euros, your bank should support such transactions. However, local restrictions should be taken into account. There is also an alternative way: to set prices in the local currency. However, this may be inconvenient for your customer. Moreover, in this case, conversion will still be performed, but the cost will be covered by the customers. This can lead to low payment conversion in such circumstances.
Fraud monitoring of international online payments
Banks usually have monitoring systems that automatically block suspicious transactions. However, there may be some difficulties in setting up the system to accept payments from abroad. For example, the system may not allow a payment from foreign customers in favor of a domestic seller. This process requires careful customization, and it is important to clarify what actions a particular bank takes in this regard.
How to accept online payments with Visa and MasterCard on the website
Any international payment system, such as Visa or MasterCard, allows cardholders to make purchases from any country in the world. For merchants wishing to accept such transactions, it is enough to connect an Internet acquiring service from any domestic bank.
In Ukraine, for example, such a service is often free and there is no subscription fee. However, the bank charges a fee for each cross-border transaction, which averages 2.5-3%. In addition, the bank charges a currency conversion fee of 0.5-1.5% of the amount. Payment processing time can vary from instant to five business days.
Accepting payments on the website using foreign cards is considered an export transaction. The seller is obliged to familiarize himself with the legislation of his country and clarify whether it is possible to conclude a foreign trade agreement for this transaction. Failure to comply with this requirement may lead to problems with the tax authorities.
Accepting international payments online: alternative methods
For organization accepting payments on the site from foreign clients, excluding the problems described above, the following is recommended:
- Open or acquire a legal entity in the payment region of interest. This will allow your business to have a presence in the local market and facilitate the process of interaction with local banks and processing companies.
- Analyze the offers of local banks and processing companies, make a choice and sign a contract with a local payment service provider.
- Working with a local provider will help you increase payment conversion by using local payment methods and reduce fees. In addition, the absence of the need for currency conversion will protect your business from losses in the event of currency fluctuations.
For example, if your business in Eastern Europe is focused on customers from the western part of the continent, opening an account with a German bank will allow you to accept payments from German residents at local rates and from customers from neighboring countries at intra-regional rates.
Regional peculiarities in accepting cross-border payments
Before entering the international market, it is extremely important to study how the payment system works to accept foreign payments. For example, Visa and MasterCard have similar principles and standards, with the only differences being the division of the world into regions and the pricing. However, it should not be forgotten that these payment systems are not always popular in all regions of the world. For example, American Express is one of the leaders in the Western hemisphere. Before entering the market, you should check with the bank whether it is able to process payments from cards of this system, given that the fees for using such cards are usually higher. The same applies to the Asian region, where China UnionPay, for example, can be a leader. Therefore, preliminary market analysis and search for a payment provider based on this data are necessary steps. There is also another subtlety: 3-D Secure security technology. Although this system is activated by default on most modern bank cards, it is not in high demand in some regions, such as the United States. This can be an obstacle, as regional banks may be unwilling to process transactions from cards that do not support this security system.
How to simplify the acceptance of online payments from foreign customers?
For convenient and profitable acceptance of payments from abroad, it is recommended to pay attention to processing companies. Here are a few reasons why this may be the best option:
- Cost-effectiveness: Accepting cross-border payments through a bank often involves high costs due to fees and government restrictions. International money transfers can also be expensive and inconvenient. Working with a processing company allows you to avoid these problems and save money.
- Scaling: When planning a large-scale international expansion, it is not practical to have one bank to process all transactions. Working with a processing company allows you to scale your business flexibly, as they already have a complex ecosystem with partners in different payment regions and agreements with different banks.
- Convenience and simplicity: Processing companies provide convenient tools for tracking and processing transactions 24/7. All payments go to a single merchant account, which simplifies accounting and financial control. Moreover, there is no need to conclude separate agreements with different banks: it is enough to work with one payment intermediary.
- Partner rates: Processing companies usually have special partner rates with banks, which allows businesses to receive reasonable payment fees.