A Rethinking of Conventional Retail Operations

International transactions are associated with the exchange of one currency for another. Unfortunately, this costs money and eats into the profits of every sale. For many years, banks were the only viable option for buying and selling internationally. Merchants relied on the exchange rates quoted by banks to conduct global currency transfers. If goods or services are sold from one country to another, currencies must change hands in a Forex transaction. The buyer pays local currency for the foreign-produced goods and services. That must then be repatriated back to the seller’s home country and converted into the local currency. All of these money exchanges through banks are expensive.

What Are the Costs Associated with Importing and Exporting?

Anytime an international (cross-border) transaction is conducted, costs accrue. B2B and B2C transactions must constantly deal with fluctuations in currency exchange rates. It is widely known and accepted that a price quoted in one currency at one point in time could be dramatically different at another point in time. For many reasons, imports and exports involving foreign currency transfers must be carefully considered. Prices must be a factor in possible changes in exchange rates, and how they could affect the bottom line. Too many people focus on the bank transfer fees as the biggest bugbear in the equation. Incoming wires and outgoing wire fees for domestic and international transfers are but a small component of the overall cost that are borne in international transactions.

The most important cost component is the spread. The spread represents the difference between the bid price and the ask price of currency pairs. In other words, how much is one currency being sold for, and how much are buyers willing to pay for it? The bigger the spread, the greater the profit for the bank, financial institution, or money transfer service. Of course, for merchants the goal is to limit the spread as much as possible to keep more of what you generate through all sales activity. Online merchants across the board are eschewing banks and traditional financial institutions in a big way. There is simply nothing to be gained by using their money-transfer services if there are cheaper, safer, and more cost-effective alternatives available. Established payments processors like PayPal are regarded as bank alternatives, but even PayPal is laden with fixed and variable costs.

How is e-Commerce Performing in International Trade Dealings?

The world’s biggest e-commerce platform, Amazon offers a currency converter service for sellers. However, it isn’t widely known that Amazon charges 4% of every payment. Experts around the world agree:  The Amazon exchange rate is sub-par , and you can do much better by choosing other international currency transfer services. These types of companies include OFX, WorldFirst, and Payoneer. However, before merchants rush to pick one company’s services, it’s important to read objective reviews on aggregator platforms. One thing is certain about using the services of leading money transfer services: profit margins will increase, clients will have reduced currency volatility, and there will be greater marketplace reach through e-commerce platforms like Amazon. Smart banking is the next wave of sensible business practice, and it begins with the selection of a reputable money transfer company.

The better alternative to using Amazon’s currency exchange is establishing a bank account abroad, receiving your funds in the local currency, and then sending it back to your domestic account at a fraction of the cost that Amazon would charge. This process seems a little convoluted, but it’s easy to set up, and results in dramatic cost savings and increased profits. Assuming 4 x annual turnover amounts of $10,000, $50,000, $100,000, and $1 million, Amazon’s currency exchange would take $400, $2,000, $4,000, and $40,000 in currency fees respectively. Specialist providers would take a fraction of that, typically less than half, or even less in currency fees. These cost savings are substantial and can be put to better use in growing a business, and increasing the bottom line.