Multi-currency 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, multi-currency transactions are only gaining in importance. Below, we’ll explain what businesses should know about multi-currency payments and how to work with them.

What’s in this article?

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

What are multi-currency payments used for?

Businesses use multi-currency payments for many purposes, including the following:

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

• E-commerce: Online businesses use multi-currency 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 multi-currency 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: Travellers can use multi-currency 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 unfavourable exchange rates.

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

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

How multi-currency payments work

Multi-currency 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 e-commerce 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 authorisation: The buyer authorises 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 multi-currency payments for businesses

Here are some of the benefits businesses can gain by accepting multi-currency payments:

• Market penetration: Businesses with multi-currency capabilities can enter and grow in foreign markets more easily. By localising 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: Multi-currency 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 multi-currency 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 favourable 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 multi-currency transactions can adapt more easily to regulatory changes and maintain compliance.

Challenges with multi-currency payments and how to work with them

Multi-currency 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.

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

Accounting requirements

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

Best practices

• Centralised treasury management: A centralised treasury management system can simplify operations for businesses that handle high volumes of multi-currency 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 multi-currency 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 non-compliance.

• Localised 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 multi-currency payments often increases payment processing costs.

Best practices

• Refined payment gateways: Businesses should select payment gateways that offer multi-currency 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 favourable rates are expected. This requires a strategic approach to cash flow management but can result in substantial cost savings over time.

System integration

Integrating multi-currency 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 multi-currency 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 multi-currency functionalities work with existing business processes.

Customer experience

A complicated payment process or hidden fees for multi-currency 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 prioritise user experience by providing clear information on conversion rates and any associated fees before the final payment step.

• Localised payment options: Offering localised 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 multi-layered security approach that includes encryption, tokenisation, and regular security audits protects multi-currency 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.