Wednesday, January 27

All currency needs to be local

The old adage money talks has never been more true than it is today.

Currency – the medium of exchange for goods and services – is essential for commerce. Any transaction requires both a currency and an amount. An amount without a currency (e.g. 100) or a currency without an amount (e.g. $) is meaningless. Without a clear understanding of both the currency and the amount, commerce breaks down, much like having a conversation where each person speaks a different language.

As the global economy continues to unlock more opportunities for cross border transactions and payments, the ability for businesses to communicate with global consumers in their language (or currency) of choice has never been more important than it is today.

COVID-19 has had a significant impact on consumer behavior, significantly accelerating digital commerce adoption across numerous geographies and demographics. Notably, this includes an influx of new, non-digitally savvy shoppers buying goods online or through other digital means. Think of how quickly consumer adoption in the grocery industry shifted to shopping online or through a mobile application. In the U.S. alone, eMarketer has estimated, nearly 5 million additional consumers aged 45 and older will transact online by the end of 2020, a 5.8 percent increase from 2019.

As businesses contemplate how to address a growing online consumer base, it has become increasingly important for their sales and business strategy to account for additional and increased cross border volume. This includes managing the costs associated with cross border transactions, allowing customers to shop and pay in the currency they prefer, and most importantly, accurately communicating the cost of goods and services.

Globally, there are expected to be more than 6 trillion cross border transactions by the year 2022. More than 26% of the global population shops online; and this number continues to grow.

Australians are the most frequent cross-border shoppers, with 47% reporting they make an international purchase at least once a month; Europeans are a close second.

As cross border commerce continues to grow, allowing consumers to transact in their preferred currency becomes foundational to eliminating negative shopping experiences. And according to our research, a single negative shopping experience will least 57% of consumers to stop shopping at an online merchant altogether.

The payments industry has observed increased use of indicative pricing, in which the buyer is provided a currency and amount that is an estimate rather than a firm price. The buyer is presented pricing for goods and services in their native currency only to learn that they will actually be charged in a different currency. This type of solution can create a lack of transparency, resulting in customer service issues, chargebacks and disputes. Indicative pricing can leave the buyer feeling confused and distressed, resulting in a very poor consumer experience.

It sounds overly simple, but communicating to a buyer the exact cost of their purchase in a currency they are familiar with is paramount to creating a positive consumer experience, and will translate into more loyal customers while helping to reduce disputed transactions.

Take, for example, a consumer from the United Kingdom purchasing a bedspread online from a merchant based in India. If the merchant is only presenting the cost in Indian rupees the consumer does not know what the item will actually cost them in pounds sterling.

Presenting an approximate currency exchange rate with an indicative amount can be perceived as a deceptive practice because full pricing transparency does not exist. A worse-than-expected currency exchange rate and additional currency conversion fees will most likely make the price in pounds more than what the customer actually intended to spend.

In an increasingly globalized economy, with more consumers purchasing goods across borders, the ability for businesses to provide transparency and convenience while eliminating friction during the purchasing process has become a significant differentiator.

After all, as a consumer what could be worse than making a purchase without knowing how much you actually spent? The merchant might as well be speaking in a foreign language, and if they aren’t doing business in a familiar currency – that’s exactly what they are doing.

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