foreign-currency

September 4th, 2012

What is a Like for Like Currency Settlement?

Like for Like Currency Settlement

Like for Like Currency Settlement

eCommerce companies commonly overlook a significant inconvenience for online shoppers buying from US companies. When an international customer makes a purchase from a US business it is as if they were present in the United States swiping their credit card. Have you ever traveled outside the US? Think of the experience you had when using your credit card in another country. The same issues you have encountered traveling internationally are what international consumers experience when buying online.

Settling in USD: Problems for the Consumer

Problem 1: What is the Exchange Rate?
Checking the Google Foreign Exchange Calculator does not mean you know what you will be charged on your credit card. It is important to understand the difference between a “benchmark” or “tradeable” rate and a raw indication rate that most online currency converters use. Indication rates typically quote a non-tradeable mid-market Interbank rate.  For example, an Interbank rate used by the Bank of Canada and is unattainable by the general public. The currency market is constantly moving, and currency rates can vary throughout the day based on market fluctuations.

Calculation Example:
Interbank rate + Buy/sell spread + Bank benchmark trading spread + ?% = Your Rate

Problem 2: Bank and Credit Card Fees
Depending on what type of credit card consumers have it is likely they will get hit with a foreign transaction fee. Foreign currency conversion fees vary from bank to bank but the average is around 2% to 4% over the tradeable benchmark rate.  Most international banks will convert the transaction after the transaction date, but before the statement date. Up to 5 business days can lapse before the bank converts a foreign transaction.

Like for Like Settlement: Benefits for the Consumer

Benefit 1: No Surprises
By settling in a local currency (like for like) a business can lock the rate the moment a consumer purchases the product or service. The price you see is the price you pay, no surprises.

Benefit 2: No International Fees
By using local acquirers to process the transaction you can eliminate any international fees. Let’s say a customer from Great Britain completes a purchase online and it is settled in GBP. The transaction is completed locally and settled to a bank in Great Britain so it’s as if the customer just made a purchase from a local market down the street.

Benefit 3: Guarantee on Refunds and Returns
Not all services offer the ability to refund the customer at the converted amount they completed their order. iGlobal Stores and other services can offer a refund guarantee and the like for like settlement. This allows the consumer to be refunded the same amount (rate) they purchased the goods for.

Give your international customers the peace of mind you enjoy when buying online within the United States. Being able to offer like for like currency settlement is one important step to offering what your global consumers want… a localized experience.

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