by Chris Jones, PSE Consulting
As a newcomer to the scene, Buy Now Pay Later (BNPL) has shaken up consumer credit, forcing merchants to subsidise costs in exchange for higher conversion rates. The question is, could this same movement be creeping into the Foreign Exchange (FX) space?
Earlier this year, Uber rolled out its preferred currency pricing feature – a new localisation service allowing riders, especially international travellers, to view and pay for trips in their home currency. The concept is simple: people prefer transparency and familiarity when it comes to pricing. However, the convenience comes with a 1.5% markup fee, sparking some pushback on the extra charge. Even so, research from PSE reveals that UK credit card issuers apply an average FX markup of 2.94%, making Uber’s offer comparatively competitive and potentially better value for many users.
BNPL altered consumer credit because merchants were inclined to take on the credit costs to drive higher basket values and conversion rates. Though less discussed in the media, a similar shift is quietly ongoing in the FX space.
So, why now? Why is the change occurring now?
Previously, merchants wanting to capture a share of the FX margin, had to rely on Dynamic Currency Conversion (DCC) at checkout. However, DCC comes with significant drawbacks, including consumer opt-in challenges—often resulting in adoption rates below 20%—as well as the need to share margins with acquirers and FX specialists, alongside navigating regulatory hurdles.
More recently, Multi-Currency Pricing (MCP) gained traction, enabling currency localisation across the entire online shopping journey rather than just at checkout. The rise of e-commerce, improved content management platforms, and more sophisticated cross-border procurement solutions have made this shift possible. Recognising the importance of currency localisation early on, Airbnb has developed one of the most mature offerings in this space.
Among digital merchants and payment service providers (PSPs), enthusiasm for currency localisation is growing. A recent PSE survey found that approximately 67% of large digital merchants already offer currency localisation, with many more planning to invest in this capability soon.
Benefits for Merchants
Currency localisation serves as a powerful revenue driver for merchants for two primary reasons:
- Direct FX Markup: Merchants can modify FX rates as they see fit. Interestingly, almost 50% of the digital merchants in the PSE survey don’t markup FX rates at all, offering this service for free because of wider benefits.
- Increased Conversion: Users prefer to see prices in their preferred currency, which often leads to higher conversion rates. There have been uplifts of 5-10% in conversions, a critical gain for merchants where even small improvements in performance make all the difference. It turns out the adage of “selling more beats the cost of payments” applies equally to FX.
Operational Issues with in Rolling Out MCP:
The implementation of MCP brings some challenges:
- End-to-End Journey: Making the buyer’s journey local would entail product listing adjustments from the get-go, not just on checkout. This requires coordination with various platforms, especially Content Management Systems (CMS), and engagement with multiple stakeholders.
- FX Risk: Clearing transactions on international cards tend to averagely take 3 days, which is too long in the FX industry. Many clients mitigate this risk by securing a 48–72-hour rate guarantee from their FX suppliers. Allowing rates to float can be risky, especially in certain regions, so careful management of this issue is crucial.
- Supplier Constraints: While global banks offer excellent FX services, they often lack the infrastructure for handling refunds and internal reporting, leaving merchants to develop their own operational processes to fill these gaps.
- Currency Coverage: To succeed in MCP, merchants need to offer a broad range of currencies. According to our survey, most clients offering MCP support between 30 and 50 currencies, this includes with some challenging currencies due to their volatility or exchange control issues. This is a complex task that requires considerable investment.
Could there be a threat to issuers on the horizon?
Absolutely – issuers should be paying attention. Since the regulation of interchange fees in Europe, FX revenue has become a crucial profit driver for card issuers. However, much like the rise of BNPL, if consumers can access lower-cost or even free FX services directly from merchants, why would they continue paying their card issuer for the same service?
While implementing Multi-Currency Pricing (MCP) can be complex, the incentives for merchants are strong, making adoption increasingly attractive. Uber’s move in this space is likely to spur further action from other companies, potentially accelerating a change that could challenge issuers’ traditional FX revenue streams.
