What are multi-currency payments? How they work, explained

Table of contents

• What is a multi-currency payment?
• How do multi-currency payments work?
• Benefits of multi-currency payments
• Challenges of multi-currency payments
• How to choose a multi-currency payment platform

What is a multi-currency payment?

Simply put, multi-currency payments allow businesses to send and accept money in different currencies. This means companies can sell products or services to a wider range of customers in a broader geographic area, even outside of their home country, without worrying about the currency customers use.

They can even accept foreign currency payments made within their home country’s borders. This gives companies greater flexibility to reach a broader audience and makes it easy for businesses to get their products or services in front of more people.

What are multi-currency payments used for?

There are a few key situations where multi-currency or international currency payments can help businesses the most. Let’s look at a few examples:

• International business transactions: Companies selling in foreign countries often need to accept payments in their customers’ and vendors’ local currencies. Multi-currency payment platforms make this easy for the business and its clients, removing headaches and potentially improving business relationships across the board.
• E-commerce: Multi-currency payments let businesses show prices in their customers’ currencies by location. This helps them make more informed purchasing decisions and may improve brand reputation in the long run. Without multi-currency payments, customers will have to do the math on their own for any product they buy. This can strengthen cross-border e-commerce strategies and increase total sales.
• Remittances: Individuals who need to send money to family and friends in other countries in that country’s local currency can do so conveniently with multi-currency payments. These platforms make it easy for the sender to transfer money and for the recipient to receive and use the funds.
• Tourism: Multi-currency platforms let tourists make purchases and get cash withdrawals at qualifying locations in local currencies, often at more favorable exchange rates. This can save tourists money and help them get more out of their trip.
• Investments: Investing in international markets and currencies can help diversify portfolios and hedge against market volatility. Multi-currency payments allow investors to make those investments without exchanging currency, letting them buy when the rate is favorable.
• Freelancing: Multi-currency payments let freelancers collect payments from clients globally while getting the money in their local currency. This makes it easy for them to gauge their income and helps manage their money as invoices are paid.

These are just a few of the ways that multi-currency payment options can help businesses and individuals.

Multi-currency payments vs. cross-border payments

Both multi-currency payments and cross-border payments allow businesses to accept foreign currencies in transactions. However, they do so in different ways.

Multi-currency payments allow businesses to accept payments in foreign currencies, even if those transactions happen within the borders of their local country. This is especially common for businesses selling products or services to tourists.

On the other hand, cross-border payments always happen in separate countries. The business is located in one country and accepts foreign currency for a transaction made by a buyer in another country. Like multi-currency payments, businesses receive funds in their preferred currency, while customers can make purchases in their preferred currency.

As you might imagine, there are some challenges associated with cross-border payouts and multi-currency payments. But by offering customers the opportunity to make purchases in their preferred currency, you’ll improve their experience with your brand.

How do multi-currency payments work?

Multi-currency payments may let customers make purchases with their preferred currency, but they work differently from traditional payments. Here are the steps that most of these payments will take:

1. The customer initiates a purchase. The multi-currency payment process starts when a customer makes a purchase. This can take place online or in-store.
2. The customer specifies their preferred currency. Once at checkout, the customer selects their preferred currency option.
3. The processor converts the currency. After the customer submits their currency preferences, the payment processor converts their chosen currency into your preferred currency at the current exchange rate plus a small fee.
4. The customer authorizes the transaction. After exchanging the currency at the current rate, the customer must authorize the transaction and make their payment.
5. The payment processes. After authorizing the transaction, the payment processor transfers funds to the business.
6. You get your money in your preferred currency. After the payment processor transfers the funds to your account, it converts them to your preferred currency based on the exchange rate the customer paid.

Keep in mind that the exact steps could vary with different payment processors.

Benefits of multi-currency payments

Offering customers multi-currency payment options through your payment processor can offer several unique benefits for your business.

• Expand market reach: By accepting payments in foreign currencies, companies can expand their business into different target markets both inside and outside their country. This can help businesses grow more sustainably.
• Offer payment flexibility: Companies are effectively giving their customers the power of choice by letting them choose the currency they want to use. This payment flexibility lets customers take advantage of current exchange rates and may help them save money, further helping brands earn their trust.
• Optimize global pricing: By offering items in local currencies, businesses can align their international pricing strategy with location-based buying power. This strengthens a business’s ability to capture a larger market share and outperform top competitors.
• Simplify reconciliation: Companies with multi-currency payment options can receive funds in their preferred currency. It eliminates the need for exchange rate adjustments during the accounting process and makes it easy to track sales, performance, and expenses.
• Enhance financial management: With multi-currency payments, businesses can hold balances in different currencies. This makes it easy for you to capitalize on favorable exchange rates, ultimately saving companies money.
• Help compliance: Working with multi-currency processing platforms helps businesses stay compliant with changes in international financial regulations and protects them when taking online payments. The platform takes the stress out of the process and lets businesses in a good position themselves to adapt to changes on the fly.

Challenges of multi-currency payments

Though multi-currency payments offer many distinct advantages to business owners, businesses need to be aware of a few challenges when accepting foreign currency:

• Exchange rate volatility: Exchange rates can fluctuate throughout the day. This volatility can make predicting your income based on foreign sales more difficult.
• Accounting complexity: Organizations need to manage accounting for all transactions in their country and those from abroad. This can make accounting difficult.
• Legal compliance: All businesses must be in full compliance with regulations, both in their country and the countries they do business in.
• Transaction fees: Many multi-currency payment processors charge transaction fees and cross-border fees for every transaction made. Companies will either want to pay those fees or pass them on to their customers. The latter could hurt customer loyalty, and the former will increase operating costs.
• System compatibility: If businesses sell products in a brick-and-mortar store, their point of sale (POS) system may not be compatible with multi-currency payments. Upgrading to a new system, like PayPal POS, can let businesses accept foreign currency payments.
• Complicated customer experience: Offering multi-currency payments, especially in-store, can make transactions more confusing and time-consuming. This could complicate the customer experience.
• Security risks: If a payment processor doesn’t use the right types of security, a business’s data and their customers’ information could be at risk during each transaction. Choosing a processor that prioritizes security can significantly reduce this risk.
• Delays and errors: Though multi-currency payments are becoming more common, banks and credit card companies still have to approve each transaction. If they don’t, this could create delays in processing and may cause customers to try their luck with competitors.

How to choose a multi-currency payment platform

Working with a reliable and trustworthy multi-currency payment platform can solve many international payment challenges.

New options hit the market every year, and choosing between those options can be tough. Here are a few key things to keep in mind when looking for a platform:

1. Compliance and regulation: Make sure the multi-currency payment platform helps businesses stay in full compliance with international regulations. An ideal platform offers ongoing support and helps you take care of everything from the start.
2. Fraud detection: All types of fraud can cost any business significant money, but it’s a greater risk for businesses that sell beyond their borders. Make sure that each platform offers built-in fraud detection so the business doesn’t end up fulfilling orders it should’ve rejected.
3. Local payment options: Multi-currency payments allow customers to make purchases with the currency of their choice, but that may not be enough to stand out from the competition. Look for a platform that lets businesses accept local payment methods like local credit cards and debit cards. This way, customers won’t be left scrambling for a suitable payment method at checkout.
4. Affordable fees: Whether companies choose to pay transaction fees for their customers or let customers pay for the currency exchange, those fees should be as affordable as possible. Be sure the platform doesn’t nickel and dime businesses or their customers for every transaction.

Leverage PayPal for global payments

Accepting payments in different currencies can help you broaden your reach and connect with customers who may not otherwise buy your products. But before you can, you’ll need to find a reliable and trustworthy platform to help you process multi-currency payments.

PayPal’s global processing platform lets you accept international payments in your customers’ preferred currency. Connect with us and see how global payment solutions can improve your business’s operations.