Online marketplaces are, by their very nature, international. Sure, you could try to only sell to Americans on Amazon.com. But, even on their American-facing market, you’ll get inquiries from buyers the world over.
Selection on smaller Amazon sub-sites, like .ca and .co.uk, leaves a LOT to be desired. Despite the added cost via import and shipping charges, they place orders on Amazon.com, or via FBA sellers on their sub-site.
And then, there’s the matter of finding
stock. Most consumer goods aren’t made in the United States anymore. We have
them manufactured in China, Vietnam, Mexico, and elsewhere.
In both cases, you’ll need to accept or send foreign currencies. Once you do this, though, you risk LOSING revenue to greedy financial industry middlemen.
How can you minimize Forex losses, and in doing so, maximize revenues? That’s what we’ll focus on in today’s piece.
Suppliers And Customers Want To Use/Receive Their Own Currencies
We indeed live in an internationalized
world. However, we still, from day-to-day, purchase stuff in our own currency.
From groceries to buying the latest gadget on Amazon, we use USD.
Meanwhile, your international customers in Canada buy most of their goods in CAD. Your Chinese supplier pays its workers in CNY. So, it isn’t surprising that they bristle at the thought of having to use or receive foreign currency.
At its most basic level, exchanging currency is a hassle. However, anyone experienced in online shopping or online business also knows they LOSE money every time they change money.
Shoppers seek out marketplaces that let them spend in their currency. Producers may choose to only deal with buyers that pay them in their money. Consequently, in e-business, much of the foreign exchange burden will fall on your shoulders.
Amazon And PayPal Gleefully Rip Off Customers On Foreign Exchange
Once upon a time, PayPal and Amazon were
startups. In those days, they aimed to change the world. As they attempted to
make internet money transfer and online shopping work, they had to fend off the
Thankfully, both succeeded. Because of the success of these two corporations, we can get paid anywhere in the world, and shop in our PJ’s. Sadly, as they’ve become Goliaths on the world stage, they’ve used their power to pad their already massive profits. One area they have in common is currency exchange.
PayPal’s primary function is to move money
– to their credit, domestic transfers are free. However, the minute you move
cash across borders, they charge significant fees. They levy a wire fee of a
few dollars, but it’s the exchange rate where they really get you. On average,
they’ll post an exchange rate 3% off interbank. If you don’t already know, the
interbank rate is the REAL rate of exchange – brokers use it to trade with each
Amazon, through its currency exchange tool, is no different than PayPal. When you move money from an international marketplace, like Amazon.ca or Amazon.co.uk, they offer a Forex rate that’s about 3.5% off interbank.
How does this disparity affect your profits? Let’s assume you sell basketball jerseys on Amazon.ca. At the end of the month, you average 20,000 CAD in revenue. At present, Amazon offers a CAD/USD rate of 0.7286. When you move your Canadian revenues at this price, you’ll end up with 14,572 USD.
What if, by some miracle, you could move your money at the interbank rate? Right now, the REAL CAD/USD rate is 0.7550. At this level, you’d get 15,100 USD. What does this mean? Quite literally, you are paying Amazon more than 500 USD per MONTH to move YOUR money around. That’s more than 6,000 USD annually – tearing your hair out yet?
The Banks Are Even Worse
Actually, save the few follicles you have
left – it’s the banks that have the market cornered on greed. Like Amazon and
PayPal, they charge fees on transfers. But, they make the bulk of their money
on their exchange rate.
Like PayPal and Amazon, the banks obscure what they charge. But, as you already know, their rate isn’t the actual mid-market price. Instead, they charge a rate that’s at least 3% off interbank. If you dabble in Canadian marketplaces, that’s what you’ll usually pay.
But, what if you’re selling on Amazon.in? In that case, and other less liquid currency pairings, the margins can be even higher. 5% isn’t unheard of – let’s see what a margin that high can do to your revenues.
On average, you sell 250,000 INR in region-free DVDs. When you move INR to USD, the local bank offers an INR/USD rate of 76.2700. When it lands in your Citibank account, you’ll get 3,277 USD, less wire fees.
But, if you could move your funds via the INR/USD interbank rate of 71.5427? Assuming you could, you’d receive 3,494 USD. That’s more than 200 USD or a difference of more than 6%. Wouldn’t you rather be using those funds to fuel growth?
Currency Transfer Providers Are Cheaper And Offer Better Service
Of course, you would. But isn’t trading money at the interbank rate an unattainable pipe dream? Literally speaking, yes – unless you’re a banker/broker, intermediaries need to charge a premium to make money.
The music industry was the first to fall. Then, the booking sites decimated travel agents. More recently, brick-and-mortar retail, under assault by Amazon and other e-commerce sites, has been ravaged by the retail apocalypse.
And then, in the 2010s, online currency
transfer providers began to chip away at the market share of the financial
Their collective greed had presented fintech entrepreneurs with the business opportunity of a lifetime. Thanks to the internet’s low-cost ecosystem, these ventures became dominant players in the blink of an eye.
For instance, Transferwise went from an arrangement between friends to a fintech behemoth in just nine years. However, super low operating costs were only one factor in their success. They took those savings and invested them in their rates. Rather than charge huge margins, they offered the interbank rate. To make money, they levied a tiny percentage-based fee on transfers.
Other online transfer providers offered similar arrangements. In almost every case, though, their savings are significant compared to PayPal, Amazon, and the banks. And better yet, they offer customer service superior to any of these players. E-mails get prompt, friendly replies. They track the progress of transfers for customers. And they also offer other value-added services. For instance, OFX offers receiving accounts, allowing buyers to dodge Amazon’s currency exchange tool.
But, really – how affordable are online currency exchange providers? Let’s stick with OFX. Remember our basketball jersey store on Amazon.ca? Let’s move your 20,000 CAD in profits using this currency transfer provider. As of press time, their CAD/USD rate was 0.7520. They don’t charge any fees upfront, so without deductions, you’ll end up with 15,040 USD.
In other words, you’ll save over 400 USD every month. How much could you grow your business with an extra 4,800 USD per year?
But, what if you are based in the UK? Currency Solutions offers great FX rates, as well as forward contracts. With post-Brexit trade negotiations happening throughout 2020, this hedging tool can help protect your profits from harmful outcomes. You lock in a rate for each monthly transfer, which defends you against sudden market movements. Smart!
Spend Your Capital On Inventory, Not Forex Fees
Cash savings are the lifeblood of any
growing business. If you’re struggling to scrape up capital to survive, let
alone thrive, look around. It’s likely there are BIG savings opportunities all
Currency exchange is one such area. As we’ve illustrated, banks, PayPal, and Amazon treat foreign exchange as a profit center. By shopping for a better deal, you can free up THOUSANDS of dollars you didn’t know existed.