In the rapidly evolving world of ecommerce, the ways in which a business and its customer base transact financially are in a constant state of flux and undergoing perpetual transformation. It isn’t all that long ago since eBay sellers would still accept cheques. Then came the ascent of Paypal, payment gateways and then in recent years transfer providers like Wise and Payonner carved out a healthy slice of the pie for themselves.
And yet recent times have seen something of what at first glance may appear as a slight regression, whereby direct bank transfers are becoming popular with both ecommerce traders and their customers.
This shift is primarily fueled by the promise of enhanced security, reduced costs, and altogether streamlined operations. But is this payment method suitable for your business? In this post we are going to delve into the advantages and disadvantages of enabling direct bank payments. We will take a look at how opening a multi currency account may help your business both to drive sales, and save costs.
The Rise of Direct Bank Payments
Recent data confirms a clear trend: more consumers are preferencing direct bank payments over other payment methods. So why is this? Afterall Payment gateways like Paypal are well established, pretty much everybody knows it, trusts it and has an account.
However anybody who knows Paypal intimately knows that it comes with a whole myriad of hidden fees. Typically Paypal levies a 4% handling fee for online sales which is usually borne by the seller. If the payment is foreign currency payment, then the cost becomes even higher once currency conversion fees and foreign exchange “mark ups” bits. It is not uncommon for ecommerce traders and online sellers to lose 8% of the value of a sale to Paypal fees.
Secondly, scams and outright fraud are endemic on online payment providers. In 2023 eCommerce Fraud cost an estimated $48 billion and a great deal of this was ultimately borne by sellers who simply had to “take the hit” and hope for the best next time. While bank transfers are also vulnerable to fraud, they are far less so than online providers.
Additionally, anybody who has ever had to deal with the customer service for any online payment provider knows that it can be very trying. And frankly, too many fin-tech providers have been caught out wrongly freezing accounts, seizing funds and acting with limited accountability all too often. All of this coupled with the aforementioned increase in fraud has caused something of a collapse in the online financial service providers.
At the same time that trust in payment gateways has declined, banks have also gotten better at enabling peer to peer bank transfers.
The Cons of Direct Payments
But alas, nothing inside the $4.6 trillion ecommerce economy is without its flaws and there are some distinct disadvantages of using direct payments as a payment method.
Firstly, unless both the buyer and the seller are using some kind of peer2peer, open banking app, then making a payment means having to manually enter both the recipient’s sort code and account number. While having to take the time to key a total of 14 or so digits may not seem to be that big of a deal, it does frustrate certain members of the ‘single click” younger demographic. Furthermore, manually entering bank details also allows margin for error.
Next, one of the real drawbacks of direct bank payments is the complexity involved in processing refunds. Unlike credit card transactions where refunds can be initiated almost immediately, bank transfers may involve more steps and a longer processing time, especially if the transactions are international. Of course, while this can frustrate buyers, it adds a layer of protection for sellers.
Finally, international bank transfers, in particular, can be subject to both delays and high fees. Factors such as differing bank policies, international regulations, and intermediary banks can all conspire to extend the time it takes for payments to be processed, potentially impacting customer and seller satisfaction. It is for this reason that bank transfers are mostly suitable for domestic e-commerce transactions – unless the seller has access to a multi-currency account which is an innovation we will explore in detail in the next section.
Multi Currency Accounts
A multi-currency account empowers online sellers by enabling them to seamlessly accept payments from customers worldwide. With a multi-currency account a seller can hold multiple “pots” in different currencies allowing them to accept payment in multiple currencies without incurring delays, or foreign exchange fees.
From the buyers perspective, making a direct transfer to a multiple currency account will feel just like making a domestic transfer.
For the seller, they may incur some low fees in accepting payments but these are generally negligible. They are then free to either use the foreign currency balance (such as to buy materials from overseas or go on vacation!) or they can convert it to their own current at any time they wish and usually benefit from a much better exchange rate than their “main” bank or Paypal would offer.
Fintech companies like Wise and Revolut have become very popular over recent years with travellers, online sellers and remote workers, and both companies are now offering free to open multi currency accounts. By providing customers with access to foreign currency accounts in their names, these platforms enable seamless international purchases via bank transfer, often with zero currency exchange fees in the case of Wise.
In the next section, we are going to take a closer look at Wise, Revolut and OFX and the multi currency accounts that they offer.
Wise Multi Currency Account
Wise (formerly known as TransferWise) has made a significant impact on the fin-tech world finance since its initial inception back in 2011. The company’s founding mission was to simplify and reduce the cost of international money transfers, and over time, it has expanded its services to include multi-currency accounts and linked debit cards.
The Wise Multi-Currency account, also known as the Wise Borderless Account, stands out as it allows account holders to keep a balance in 40 different currencies and facilitate transactions in 160+ countries. This account allows users to receive money without fees from 30 countries, offering local bank details in 10 major currencies like USD, GBP, EUR, AUD, and NZD.
In terms of fees, opening a Wise Multi-Currency account is free for personal customers, and there are no charges for holding currencies or receiving money in most major currencies.
Overall, Wise is well known and respected for its transparency, with no hidden fees and a clear upfront display of charges for each transaction. Its easy to use app has also won the brand many admirers.
Revolut Multi Currency Account
Revolut has emerged as a dynamic player in the world of digital banking, particularly appealing to those who prefer managing their finances through mobile technology. Launched in 2015, Revolut quickly gained popularity primarily as a prepaid travel-debit card that offered a variety of financial services that extend beyond traditional banking.
The core and heart beat of Revolut’s offerings includes personal and business accounts, each with multiple tiered options, catering to different needs and budgets.
For personal account holders, Revolut provides a digital multi-currency account, which currently supports over 25 currencies. This account comes with both physical and virtual payment cards, and offers features like budgeting tools and “Vaults” for saving money.
The account tiers – Standard, Premium, or Metal – differ in terms of their transaction limits, international transfer fees, and additional perks.
OFX Multi Currency Account
OFX, originally known as OzForex, is an Australian-based global company offering international money transfer and foreign exchange services. Founded in 1998, it has established a strong reputation for providing efficient and low-cost foreign exchange services. OFX caters mainly to businesses and online sellers, offering features like multi-currency accounts, forward contracts, and limit orders to manage currency risk.
OFX offers multi-currency accounts for business users that allows account holders to hold balances in 9 different currencies.
Note that OFX does not currently provide personal multi-currency accounts which may cause issues for some small-scale online sellers who have not formally incorporated a business.
Final Thoughts About Multi Currency Accounts
As we said right at the start, the ecommerce sector is a rapidly and endlessly evolving one. Today’s innovations are tomorrow’s antiquities, and it seems that payment gateways like PayPal may finally be headed the same way as the bankers draft.
If you are operating an ecommerce business, there are no longer many barriers between you and your customers, regardless of where they are in the world. With a whole number of free to open, easy to operate multi-currency accounts on offer, it is easier than ever to take payments from customers no matter where they are and no matter what currency they are paying in.
