By embracing international payment processing, small businesses can unlock numerous opportunities, remain competitive, and contribute to the country’s economic development.
Every business aspires to go global. But reaching international markets isn’t always smooth sailing. Expanding beyond borders requires understanding volatile foreign economies, mastering diverse regulations, and navigating a complex web of processes. While the rewards are amazing, the journey demands careful planning and strategy.
Can’t wait to sell overseas? This quick primer on international payment processing should provide a good foundation.
1. Merchant Account: Think of it as a special bank account for businesses that lets them accept payments using credit or debit cards. It connects the customer’s bank to the business’s bank to make payments happen.
2. Payment Gateway: Technically a digital cash register, it’s a virtual point-of-sale (POS) for online transactions.
3. Payment Processor: Essentially akin to a middleman. It makes sure payments go smoothly between the customer and the merchant. They also help protect against fraud.
4. Currency Conversion: It’s like exchanging money at a currency exchange booth. When you buy something from a business in another country, the payment might need to be converted to the local currency.
5. Foreign Exchange (FX) Risk: This is the risk that the value of one currency might go up or down compared to another. For businesses that sell to or buy from other countries, this can affect their profits.
6. Chargeback: A refund initiated by the customer’s bank. It can happen if the customer is unhappy with the purchase, if there’s a problem with the transaction, or if the customer thinks it might be a scam. This can be bad for the business because they lose money.
Your choice should be guided by your business’s target market, transaction volume, and cost analysis. Offering multiple options will attract a diverse customer base and increase sales.
Credit and Debit Cards: These are the most common ways to pay, both in your country and around the world. They’re easy to use - but there can be fees, and chargebacks are always a risk.
Bank Transfers: Direct bank-to-bank transactions that are ideal for large purchases. It’s safe, however, they can be slow and may involve high fees.
Digital Wallets: Maybe you’re already one (e.g., PayPal, GCash, Maya). They’re generally secure and convenient, especially for buying things online.
When dealing with overseas clients, currency exchange is an inevitable part of the process. The problem is that the price of one currency compared to another can go up or down. This is called foreign exchange (FX) risk.
Imagine a Filipino business that exports bamboo furniture to the United States. The deal was for $10,000. The dollar was valued at 55 pesos when the agreement was made.
But then, the peso lost value, so it took 60 pesos to buy one dollar. When the business converts the $10,000 to pesos, they will receive 600,000 instead of the original 550,000. This means the business will earn less profit due to the weaker peso.
Small businesses can lose a lot of money because of these changes. To mitigate FX risk, you can:
Use Hedging Instruments: Tools like forward contracts allow businesses to lock in exchange rates for future transactions, reducing the impact of unstable exchange rates.
Maintain Multi-Currency Accounts: Keeping funds in different currencies (e.g., dollar accounts in your preferred bank) can help businesses by allowing them to choose when to convert currencies based on favorable rates.
Compliance with global regulations is not only a legal requirement but also helps build trust with customers and partners. Businesses should learn about regulatory changes and ensure their payment processes are compliant.
Fraud prevention is a top priority in international payment processing. Fraudulent activity can result in substantial financial losses and damage a company’s image. We recommend these strategies to avoid fraud:
Use Secure Payment Gateways: Ensure your payment gateway is PCI DSS (Payment Card Industry Data Security Standard) compliant. This standard helps protect card information during transactions.
Implement 3D Secure Authentication: This adds an extra layer of security by requiring customers to enter a password or code sent to their phone during the procedure.
Monitor Transactions: Looking for unusual patterns can help detect and prevent fraudulent activity.
Educate Customers: Inform your customers about the importance of secure passwords and recognizing phishing attempts.
Knowledge of cross-border payments is crucial for small businesses seeking to compete on a global scale. By choosing the ideal payment systems, managing currency exchange risks, and observing global regulations, you can steer your company toward success. Build trust, minimize hazards, and stay informed – this is how you compete in the global marketplace!
Whether you are a budding entrepreneur or an established company, Mochi Solutions has the features to help take your business beyond domestic borders.
Discover effortless invoice management, convenient recurring billing, and seamless integration with other tools. No more manual invoicing or chasing payments. Just faster, simpler billing.
Mochi Solutions is a billing and collections platform designed to help Filipino businesses get paid on time, every time. By digitalizing the invoicing process and automating repetitive tasks, we empower businesses to focus on growth.
