Multicurrency payments allow businesses to accept and handle money in different currencies. This is especially useful for companies that have customers in different countries. For example, if your business sells software online, a customer in Germany can pay you in euros while a customer in Australia can pay you in Australian dollars to simplify the buying process.

With global payments expected to rise from $190 trillion in 2023 to $290 trillion by 2030, multicurrency transactions are only gaining in importance. Below, we’ll explain what businesses should know about multicurrency payments and how to work with them.

What’s in this article?

• What are multicurrency payments used for?
  
• How multicurrency payments work
  
• Benefits of multicurrency payments for businesses
  
• Challenges with multicurrency payments and how to handle them
  

What are multicurrency payments used for?

Businesses use multicurrency payments for many purposes, including the following:

• International business transactions: Companies that operate globally use multicurrency payments to make and receive payments from customers, suppliers, and partners in local currencies. This simplifies cross-border transactions and strengthens business relationships.

• Ecommerce: Online businesses use multicurrency payments to cater to a global customer base. By allowing customers to pay in their local currencies, businesses can improve the customer experience and potentially increase sales.

• Remittances: Individuals sending money to family or friends abroad often use multicurrency payments to ensure the recipient receives funds in their local currency. This makes it more convenient for them to access and use the money.

• Travel and tourism: Travelers can use multicurrency payments to make purchases or withdraw cash in the local currency of the country they are visiting. This bypasses the hassle of currency exchange and unfavorable exchange rates.

• Investments and trading: Investors and traders in international markets frequently use multicurrency payments to buy and sell assets.

• Freelancing and remote work: Freelancers and remote workers who receive payments from clients in different countries can use multicurrency payments to get paid in their preferred currencies, which makes it easier to manage their finances.

How multicurrency payments work

Multicurrency payments slightly differ from traditional payments because they involve currency conversion. Here’s an overview of the process:

• Transaction initiation: The process begins when a buyer initiates a purchase from—or a transfer of funds to—a business or individual in a different currency. They can use an ecommerce platform, a remittance service, or any other payment gateway that supports multiple currencies.

• Currency selection: The buyer typically has the option to select their preferred currency for the transaction. This allows them to see the exact amount they need to pay in their local currency, helping them avoid any surprises.

• Currency conversion: The payment processor or gateway initiates a currency conversion. It converts the paid amount from the original currency to the buyer’s selected currency using the exchange rate at that moment. This exchange rate might include a small markup or fee from the payment processor.

• Payment authorization: The buyer authorizes the payment using their chosen payment method, such as a credit or debit card and bank transfer. The payment processor verifies the payment details and ensures sufficient funds are available.

• Settlement and reconciliation: Once it processes the transaction, the processor settles the funds into the recipient’s account. Some multicurrency accounts enable businesses to hold, manage, and transfer funds in multiple currencies without converting them immediately.

• Fund transfer: The recipient receives the funds in their local currency.

Benefits of multicurrency payments for businesses

Here are some of the benefits businesses can gain by accepting multicurrency payments:

• Market penetration: Businesses with multicurrency capabilities can enter and grow in foreign markets more easily. By localizing pricing without the overhead of establishing local bank accounts in every market, businesses can test and expand into new territories with fewer logistical and financial barriers.

• Dynamic currency conversion: Businesses can use dynamic currency conversion tactics to offer customers the option of paying in their currency at the point of sale. This improves the customer experience while allowing the business to benefit from better conversion rates and higher revenue.

• Advanced pricing tactics: Multicurrency systems enable businesses to implement geo-pricing tactics where prices are not just converted but strategically set based on local market conditions, purchasing power parity, and competitive analysis. This refines pricing, which can boost margins or capture market share, depending on strategic goals.

• Automated reconciliation: With advanced payment gateways, businesses can automate the reconciliation of multicurrency transactions. This reduces the administrative burden and the risk of errors. This automation improves cash flow management and provides real-time financial data for quick, strategic decision-making.

• Liquidity and cash flow management: Businesses can maintain balances in multiple currencies to take advantage of favorable exchange rates or investment opportunities. This ability to manage liquidity across currencies can enable more cost-effective international money management.

• Regulatory compliance: Handling multiple currencies requires compliance with a variety of international financial regulations. Companies that are adept at multicurrency transactions can adapt more easily to regulatory changes and maintain compliance.

Challenges with multicurrency payments and how to work with them

Multicurrency payments can provide tremendous benefits to the businesses that use them, but they also come with risks. Here are some challenges to be aware of and how to mitigate them.

Currency fluctuations

Fluctuations in currency exchange rates can make it difficult to accept payments in multiple currencies while maintaining a consistent profit margin.

Best practices

• Strategic currency hedging: Rather than locking in rates, businesses can employ a blend of hedging techniques that match their specific cash flow needs. For example, natural hedging—in which expenses and revenues in the same currency are aligned—can reduce the need for financial instruments and provide a more organic buffer against currency swings.

• Localized pricing tactics: To offset the impact of currency fluctuations, businesses can adopt a localized pricing approach that adjusts dynamically based on market conditions. This keeps prices competitive without eroding margins due to unfavorable exchange rates.

Accounting requirements

Multicurrency payments require managing local and global reporting requirements and can increase the workload for a business’s accounting team.

Best practices

• Centralized treasury management: A centralized treasury management system can simplify operations for businesses that handle high volumes of multicurrency transactions. This system enables real-time visibility into global cash positions, allowing businesses to make informed decisions and handle currency strategically.

• Process refinement: Regularly reviewing and refining accounting processes such as reconciliation and reporting keeps them efficient as the business grows. This might include integrating AI-driven tools that automate and improve accuracy in multicurrency accounting.

Regulatory compliance

Businesses that handle multiple currencies might need to comply with multiple countries’ payment regulations.

Best practices

• Proactive regulatory engagement: Businesses should engage proactively with local regulators and industry bodies to understand upcoming shifts in finance. This allows companies to adjust their compliance strategies before changes are enforced and reduces the risk of noncompliance.

• Localized expertise: Employing or consulting local financial experts in key markets can provide important insight into regulatory nuances. This ensures that the business remains compliant while enhancing operational efficiency.

Transaction costs

Accepting multicurrency payments often increases payment processing costs.

Best practices

• Refined payment gateways: Businesses should select payment gateways that offer multicurrency support with minimal conversion fees to reduce costs. They should also regularly review and negotiate fees with providers, especially as transaction volumes increase.

• Strategic currency holding: Instead of converting currencies immediately, businesses can hold funds in certain currencies when favorable rates are expected. This requires a strategic approach to cash flow management but can result in substantial cost savings over time.

System integration

Integrating multicurrency payments into a business’s payment system can be time-consuming and difficult.

Best practices

• Modular integration: Adopting a modular approach to system integration allows businesses to grow their multicurrency capabilities as needed. By starting with necessary components and gradually adding more complex features, companies can avoid overwhelming their existing infrastructure and ensure a smoother transition.

• Application programming interface (API) integration: Using APIs for integration provides greater flexibility. This approach enables simple communication between different systems and ensures that multicurrency functionalities work with existing business processes.

Customer experience

A complicated payment process or hidden fees for multicurrency transactions can make customers rethink a purchase.

Best practices

• Simple currency conversion: A transparent, straightforward currency conversion process at checkout can boost customer trust and reduce cart abandonment. Businesses should prioritize user experience by providing clear information on conversion rates and any associated fees before the final payment step.

• Localized payment options: Offering localized payment methods familiar to customers in each region can boost conversion rates. This approach demonstrates a deep understanding of the customer’s preferences and builds brand loyalty.

Security considerations

Handling multiple currencies can introduce new security concerns and complicate payment security protocols.

Best practices

• Layered security architecture: A multilayered security approach that includes encryption, tokenization, and regular security audits protects multicurrency transactions from emerging threats. As part of this strategy, businesses should also invest in real-time monitoring tools that can detect and respond to potential breaches immediately.

• Staff training: Training employees on the latest security practices ensures everyone plays a role in mitigating risks.