Why every foreign exchange transaction matters

As an online seller, it’s your time to shine. Around the world, government orders have shuttered brick-and-mortar retailers deemed nonessential.

Meanwhile, e-commerce stores like yours remain open for business. Yes, it’s true economic uncertainty will negatively impact demand for some products. However, people will still need clothing. They will still seek the distractions that the latest gadget can provide. They will continue to play video games.

In short, as long as consumers are looking to engage in retail therapy, there will be demand. Before you relax too much, we have to warn you – there’s another danger you aren’t thinking about.

That danger is foreign exchange rates. In a pre-COVID world, not paying attention to them could cost you significant profits. Today, an ill-timed and planned transfer could conceivably SINK your business.

As an online seller, every shift in currency rates matters. In a world where sudden developments send rates gyrating more than 2%, that importance is magnified.

In today’s post, we’ll show why you should stop moving cash through banks and PayPal. We’ll also introduce you to money transfer providers that offer tailored solutions for folks like yourself.

Foreign Exchange Rates Matter More Than They Ever Have

The last month has seen more movement in currency rates than at any time since the Global Financial Crisis. From March 9 to March 19, the USD rose almost 15% against the GBP to 0.87448.

As the panic selling subsided, USD/GBP corrected somewhat to 0.80299. However, as restrictions tighten, then relax, and then tighten again (due to 2nd wave infections), rates will continue to fluctuate wildly.

Let’s say you’ve set up currency transfers at the same time each month. These automated transactions repatriate revenue from your foreign e-commerce stores, like those on UK-facing sites. Before things kicked off in March 2020, GBP/USD was at 0.76356 (March 9)

In conditions like these, you need two things. First, you’ll need a transfer provider that will give you the best possible rate. And two, you’ll need a firm that will shelter your transfers against volatility.

PayPal Birthed Online Commerce. But They’re No Longer Your Friend.

Spoiler alert: if you’re looking for the best £ vs $ rate today, you aren’t going to get it from PayPal. They also don’t provide protection against shifts in exchange rates.

Don’t mistake our critique for mindless bashing. We’re aware that PayPal enabled e-commerce as we know it. However, this firm has taken advantage of its reputation to charge fees and exchange rates that would make a banker blush.

Let’s start with the levies that PayPal imposes on international transactions. First, there are fees you have to pay when you receive payments from outside your home country. If you’re in the USA, you’ll have to spend between 0.5% to 2% of the amount sent.

When you repatriate revenues from abroad, you’ll also have to use an exchange rate that’s radically different from the interbank rate. In case you’re unaware, the interbank rate is what brokers/banks use to trade currency amongst each other.

Depending on the country from which you’re importing revenue, you’ll pay 3.75% to 4% off interbank. Let’s assume you’re bringing home 20,000 GBP in sales back home from Amazon.co.uk. At present, PayPal is giving you a GBP/USD rate of 0.77214.

Before you move a dime, though, you pay a 2% fee on the amount sent, as it’s coming from the UK. 2% of 20,000 GBP is 400 GBP. When the transfer takes place, 19,600 GBP gets moved at the GBP/USD rate of 0.77214. As a result, 15,133 USD lands in your PayPal account.

What would happen if you could move your funds as bankers do? First of all, there would be no fees. Second, you’d get to move 20,000 GBP at the USD/GBP interbank rate of 0.80299. This rate will give you 16,059 USD – or almost 900 USD more.

Every time you move this quantity of funds through PayPal, you’re paying them 900 USD for the privilege. That’s obscene!

Some Money Transfer Providers Cater Specifically To Online Sellers

Have we roused you out of your lazy PayPal habit yet? If not, allow us to convince you of the superior alternatives that are out there.

First and foremost, online-based money transfer providers offer better rates on international transactions. Remember how PayPal offers rates approximately 3.75% off interbank? Well, firms like OFX comes much closer to the mark used by bankers.

As of publication time, this Australian-based brokerage charged a GBP/USD rate of 0.80154. On top of that, they don’t charge fees. So, you would end up with 16,030 USD in your account. That’s almost as much as a pure interbank currency trade!

That’s not the only advantage – by going with a provider like OFX, you’ll also get perks like receiving accounts. Rather than transfer Amazon revenues to your currency at unfair rates, you can receive funds in a local account.

You can also access services like international invoicing. Many online money transfer providers have software that allows customers to bill their clients with ease.

Conclusion

The world is changing faster than most of us can understand. As it does, volatile FX rates may play havoc with international revenues. By teaming up with an online money transfer provider, you can save money and time.

Mark Thomasson
Mark is a biz-dev hero at Invoicebus - a simple invoicing service that gets your invoices paid faster. He passionately blogs on topics that help small biz owners succeed in their business. He is also a lifelong learner who practices mindfulness and enjoys long walks in nature more than anything else.
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