Tips, Marketplaces
How to start selling on Zalando (PART 2): Content tailoring
25 März 2021
Selling online is already a pretty tough game, without needing to consider the technical challenges of processing payments. However, if you want to sell on marketplaces (and especially across borders), you should spend a little time to consider the options. By taking time to actively research and choose the right payment service provider for your needs, you can gain flexibility over exchange rates and reduce your transaction costs too. In some cases, you can reduce your currency transfer costs by more than 85%.
Let’s look at what payment service providers do, and how they can make international and domestic trade easier and more profitable, while slashing your transaction costs.
A payment service provider (PSP), is a company that accepts, authenticates, and processes all kinds of electronic payments on your behalf. They are like a gate-keeper between the different acquiring/issuing banks, credit card companies, and payment networks. They’re basically essential if you want to take payment by card, or trade across borders, without negotiating agreements and arranging secure connections between these entities yourself.
Using a PSP, you’re a lot less dependent on big financial institutions. It means that you also don't have to make contracts or connections with banks and payment companies yourself.
PSPs are especially convenient for when you want to sell on multiple sales channels, offer various payment methods, and sell cross-border. You can use the same PSP for lots of different channels, which will simplify your processes and reduce costs.
If you’re based in the USA and sell via a marketplaces’s USA site, then you can have payments disbursed directly into your bank account. No problem. However if you are based outside the USA, you would either need to pay the marketplace’s currency exchange fees, or use a PSP as your ‘bank account’ and then manage your revenue from there. Using a PSP with a local currency account will make it even easier to take advantage of good exchange rates, and their margins are usually lower (meaning they charge less of a percentage above the spot price).
This last point is probably the most significant. Because many online sellers are very focused on cost reduction, they tend to look only at the fixed monthly costs and the ‘per transaction’ fees, but not the foreign exchange element of the sales process. While it isn’t entirely illogical, it does ignore the fact that you can save or lose significant amounts on foreign exchange!
Let's look at an example, to show how you can save money by choosing the right PSP for your situation.
If you sell your products through international marketplaces like Amazon, your sales will be made in a foreign currency. If you choose to enter your local bank details into Amazon Seller Central, the payout from Amazon will be at fixed times and generally exchanged at poor rates.
Let’s look at a simplified example: imagine a Dutch online merchant who sells via Amazon to customers in the USA. In this case, the collected payments are transferred to their account in the Netherlands every two weeks. This means they are exchanged from US dollars to Euros at unfavorable exchange rates, including a commission: 0,75% for really big online sellers and up to 1.5% for smaller online sellers.
If you’re already operating with tight margins, this could make it much less profitable to sell on Amazon. In a bad year, that 1.5% could make all the difference. Luckily, there are PSPs out there that can solve this problem.
A major payment service provider such as WorldFirst lets you open a local currency account in several different currencies. Opening an account like this only takes a couple of minutes. There's no need to visit a local branch, or have a local address. This is a big advantage, as many ‘regular’ banks don't offer foreign currency accounts.
With the account, you can receive payments in local currency, hold funds to pay suppliers in local currency, collect your earnings whenever you want, and make transfers in over 130 different currencies.
This way, exchange fees can be up to 85% cheaper than when you use high street banks or Amazon’s own rates. By carefully timing the transfer, you can benefit from better exchange rates too, which is a further advantage.
Figure 1. How using a PSP can save a lot on currency exchange fees.
If you're looking for a payment service provider and an account to handle local currency, you should consider the following:
Regarding that last point (the location of accounts), you should be aware that in February 2021, Amazon announced its PSP program launch. It means that effectively, from the first of May, Amazon sellers can only use Amazon-accredited PSPs to collect funds. Amazon has made this change to drastically increase visibility about the flow of funds, and to identify bad actors, fraudulent accounts, et cetera.
This change has been in the making for over a year. Only ten providers (including WorldFirst, Payoneer, LianLian, and PingPong) were already plugged in at launch. More PSPs will be added in the future. However, if your provider isn't already listed you can no longer collect payments through Amazon beyond July 15th 2021.
Retailers spend a lot of time building a lean, efficient, and profitable business. So it would be a real pity to have that profitability eroded by poor planning in the ‘last mile’ of your transaction. The percentages can seem small, and there is an entrenched attitude that all the options must be ‘about the same’, but in fact, the differences can be huge.
There are big differences in the way that each PSP conducts business, the services they offer, and how they charge for them, as well as the amount that they charge.
So, although it can take some time to sit down and run the calculations for each PSP, it is also one of the most important tasks you can do. Spending a little time doing this can save you a lot of money in the long-term.
