Processing foreign currency payments from Australia

September 2, 2014
Chris Dahl
Click here for updated information on multi-currency payments

The recent availability of simple yet powerful e-commerce and marketing tools has put launching an online business within reach of anyone with an idea and the initiative to get started. Considering the size of the Australian market relative to Europe and the US, many software startups share the thinking that when launching from Australia you should go global from day one. More-traditional businesses might wait until they’ve scaled their operations at home in Australia before looking abroad.

Why bother with foreign currencies?

An important factor when selling to international customers is your ability to advertise prices and process transactions in their local currency. Displaying prices in AUD raises questions like:

  • “Which country is that?”
  • “What will I end up paying after conversion to my currency?”
  • “I wonder if they ship to me?”
  • “Will they be harder to contact compared to the alternatives?”

Every question presents a point of friction in your checkout or sign-up process. Displaying prices in your customer’s currency (or USD) can make it easier for your business to compete on a level playing field with companies located in the country you’re targeting.

Options prior to 2013

Ask any Australian business billing in foreign currency (most commonly USD) and you’ll hear similar stories of bouncing between banks and payment gateways searching for a multi-currency solution. Here are just a few forum threads highlighting the frustration:

The options available had their advantages and disadvantages, with none of them really providing the knockout punch of easy setup, limited costs, and flexibile integration.


Option 1: Foreign currency merchant account

A merchant account is a special type of bank account that enables you to process payments via credit and/or debit cards. Establishing one of these typically involves considerable paperwork and preparation of business plans, coupled with a processing timeframe of 1-3 months.

Most banks in Australia do not offer foreign-currency merchant accounts. Worse still, the terms of service for a typical merchant account can prohibit your business from advertising prices in foreign currencies (even if the price is converted to AUD at the time of the transaction). NAB are unique in Australia in their support for card transactions in most currencies, and they don’t hide the fact (one of the reasons Pin Payments counts them as a partner). For all the bank bashing that goes on, NAB should be commended for how much they’ve done in the space.

Establishing a foreign currency merchant account involves a similar (and more involved) process to setting up an AUD merchant account, and you’ll need to add:

  1. Foreign currency merchant account (to be able to process credit-card transactions).
  2. Payment gateway (so your website can connect to your merchant account).
  3. Foreign currency bank account (to settle the captured funds).
  4. Your own method for converting funds to AUD and transferring to your AUD bank account.

If your efforts with this approach are successful, and if you’re able to supply the security deposit and setup fees, you’ll be able to take payments in one currency. Repeat the process above for every currency you’d like to use. Most of the discussions in the forum threads posted above refer to this type of setup.


Option 2: Establish a foreign business entity

Taking it to the next level is registering an entity in the foreign jurisdiction you’re targeting, enabling you to work with banking institutions who may be more progressive with payments, and being able to bill in the foreign country’s domestic currency (e.g. USD) through a merchant account or an alternative payment provider in the region.

Moving your company is overkill for the sake of being able to bill in a foreign currency, but this approach highlights what some businesses considered in the past. This route still may be relevant to you if you’re looking to establish a presence in a foreign market. There’s a great prior discussion in the Silicon Beach Australia group worth reading.


Option 3: PayPal

Back when your only option was to open a merchant account with a bank, PayPal provided an easy alternative to start accepting payments online. A limitation however for Australian merchants is that in most situations you’re redirecting customers off your site to pay, which can lead to confusion for customers and a lack of control for merchants. PayPal’s product suite differs around the world, and their Australian offerings lag behind those in the US and UK considerably.

PayPal allow you to process payments in foreign currencies and accumulate funds in your PayPal account. At the point you withdraw your funds to your Australian bank account you’ll incur a currency conversion fee. Some of the fees are available on the PayPal website.

Now there’s an easier way

The options discussed so far were the lay of the land until 2013, when the online payments landscape changed for the better in Australia. The new generation of online payment systems, including Pin Payments, offer easier access to foreign currency transactions capabilities, and in most cases are more cost effective than the options discussed above.

Australia’s first all-in-one multi-currency payments

Pin Payments is an Australian company founded in 2011 and launched to the public in May 2013. At the time opening a merchant account with a bank was required to accept payments within your website or app. It was common for software developers and agencies to need to hand-hold their clients through this process, and there was no guarantee if and when an application would be approved. Pin Payments changed this - working with NAB and Perpetual, we made all-in-one multi-currency payments available to all Australian businesses for the first time.

With the new generation of payment systems like Pin Payments, no merchant account is required; you just provide your existing bank account details where funds are deposited. Credit card payments can be processed in AUD or any of the supported foreign currencies.

Comparing options for processing transactions in foreign currencies in Australia

Solution Merchant accounts Foreign business entity PayPal & third-party systems Pin Payments & new generation systems
Pros
  • Next day settlement may be possible depending on your bank
  • Logical step if you’re opening a physical office in that country
  • Easy setup
  • Use your existing bank account
  • Single account to support multiple currencies
  • Easy setup
  • Single account supports multiple currencies
  • Use your existing bank account
  • Settle foreign currency transactions in AUD or foreign currencies
Cons
  • Requires additional account with a traditional payment gateway
  • Long application process
  • Security deposit required + monthly account fees
  • Requires one merchant and settlement account per currency
  • Requires a director or equivalent in foreign country
  • Requirement still exists to select a payment processor in that country
  • Tax/legal/operational issues can add complexity if your primary business is Australian
  • High fees for foreign currency transactions
  • High conversion fees when withdrawing funds to your bank account
  • Limited flexibility due to lack of developer APIs
  • Settlement can be delayed by a number of days (avoids you maintaining a security deposit)

We’re working hard to make it easy to run online businesses from Australia. By bringing new capabilities to small businesses we improve the local payments industry as a whole. As always, if there’s anything we can do to help your business get paid, talk to us on 1300 364 800, email support@pinpayments.com, or tweet @PinPayments.

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