5 Things Every Savvy Seller Should Know About Global Expansion
Everyone wants to find new customers. At some point, that usually means expanding to global Amazon marketplaces. Once you’re ready to take your Amazon business global, there’s one important question you’ll need to ask yourself… How will I get my money home?
Amazon’s marketplaces are designed to create native experiences for shoppers. So, if someone in Germany is shopping on Amazon.de, they’ll pay in Euros. If you’re an American-based business, that means you’ve got to get that money exchanged into dollars.
In this article, we’ll give you five important tips for exchanging foreign currency to maximize Amazon profits and cut out greedy middlemen.
1) There’s No Such Thing as Free Currency Exchange
Here’s why it’s better to know there’s no such thing as free currency exchange… once you know the REAL cost you’re already paying, then you can get serious about finding the best exchange rate. It’s important to shop around, just like you would with any other banking service.
You wouldn’t gladly hand over a percentage of all the money you deposit into your checking account? Yet, that’s exactly what you might be doing if you’re using a service like Amazon Currency Converter. Without even knowing it. That’s because Amazon Currency Converter doesn’t charge an upfront fee; they build their service cost into the transaction. By some estimates that cost is as high as 3.5%* for transactions.
With a reputable global currency account, you can lower your cost down to 1.5% or 1% or less, depending on how much you exchange per month. Naturally, you’ll be able to get a slightly better rate if you exchange higher amounts.
*Rate estimate for Amazon Currency Converter based on actual transactions between July 9, 2016 – July 23, 2016.
2) Not Everyone Can Get a Foreign Bank Account
Having a foreign bank account sounds pretty international and cool, right? But opening a foreign bank account isn’t an option for all Amazon sellers. Sure, banks are the first place many Amazon sellers begin when they need to exchange foreign currency. But going down to the bank to open an account isn’t always simple – especially when that bank is 6,000 miles away! The situation is more complex for Americans than EU citizens, who can transact more freely with other EU countries.
“The fact is most foreign banks do not want deposits from U.S. citizens,” according to Investopedia. Foreign banks aren’t always set up to handle U.S. taxation enforcement and regulations, they don’t have the kind of compliance departments required. American e-commerce merchants should understand there are legitimate hurdles to opening foreign bank accounts going into the process.
Shop around for a bank, and see if you meet the requirements for a foreign bank account. But don’t be too disappointed if it doesn’t work out, you might not even get the best rate with a bank. Be sure to compare all your options, including finding financial services designed for e-commerce sellers that have lower fees than banks.
3) Not All Exchange Fees Are Created Equally
Whenever you’re opening a new financial services account, it’s smart to know your fees. In a perfect world those fees would be upfront and reasonable. But that’s not always how it works, especially with traditional banks.
Generally, currency exchange fees fall into two categories:
Transaction Fees: Transactions fees are charged when a transaction takes place in your account. For example, if when funds are leaving (debit) or entering (credit) your account.
Foreign Exchange Fees: When it comes to foreign exchange fees (or FX fees, as they’re called), things get a little trickier. Many companies claim they don’t charge a fee, when they’re actually just charging you an unfavorable exchange rate. (It’s the classic case of exchanging $100 in a foreign country and getting back the equivalent of $90). The fee isn’t separate from the transaction, but it’s definitely there – You’ll feel it in your bank account.
4) Watch Out for More Sneaky Fees
Now that we’ve got a handle foreign exchange and currency fees, it’s important to know there are other sneaky fees to watch out. Remember, your global currency exchange account is still an account. You wouldn’t open a checking account without asking if they charge each time you write a check. Foreign exchange accounts are no exception.
One of the sneakiest fees that comes with cross-border accounts is the withdrawal fee. It goes like this, you pay to exchange your money into your local currency for what seems like a low fee. Then when you want to want to withdraw the money to use it – surprise! That’s another fee.
Also, watch out for debit cards connected to global currency accounts. There’s almost always hidden costs to using the new crop of debit cards out there. As easy and convenient as using a debit card may seem, you may be better off just transferring your money (without a fee) and using your own bank card.
Be on the lookout for monthly fees, ATM withdrawal fees, and transaction fees when you examine your account options.
5) You Really Can Pay Your VAT for Free (Really!)
Yes, you really can pay VAT taxes and suppliers for free. With the right global account, you can even avoid the dreaded double exchange fee! Don’t know what a double exchange rate is? Here’s how it goes…
Say, you’re selling in the UK and need to pay UK VAT authorities. They only accept pounds. But you don’t have any of those, so you exchange some dollars into pounds to pay you VAT. Where do you get those dollars? From the pounds in your Amazon account. That means you pay to exchange pounds into dollars and dollars back into pounds.
No one should be paying double foreign exchange fees. Ever.
Here’s how to avoid them when paying your VAT. When Amazon pays you, say in pounds, just keep some pounds in your currency account to pay your VAT. That way, you cut out the middleman and skip the additional exchange fees altogether!