However, through all of this, many people still don’t really know much about how they pay for their items. It is all too easy to enter our credit card details into a form and let the payment portal do its magic. But is this a good way to pay or are you wasting money on transaction fees and exchange rates?
To determine the best ways to pay when shopping internationally, let’s first take a look at what happens when you pay for an item locally.
What is a Point of Sale?
A point of sale (PoS) refers to the payment portal that you use to pay for a product or service. When you go into a store and pay with your card, the card machine is the PoS. When you pay for something online, on the other hand, the PoS is the payment portal used by the website to take your details and verify the purchase.
Different retailers use different service providers, but the concept remains the same. The PoS uses secure means to execute the transaction, taking money from your account and putting it in the seller’s, usually without any fees.
This becomes more complicated when buying goods internationally. In 2022, this mainly comes down to having to deal with exchange rates. A seller abroad may be using exactly the same payment portal as a seller at home, but they are charging you in one currency and you are paying in another.
While some individual sellers facilitate payment in pounds, even when they are selling in another currency, many simply expect you to pay at whatever exchange rate your bank chooses, along with transaction fees.
This is why we need to use better methods of paying internationally when shopping online. It is all the more important when making major purchases like luxury items.
If you're looking for information on how to pay for an item internationally, here’s what you should know.
What does it cost to pay in foreign currency?
Most consumers are willing to simply pay in foreign currency for small purchases, under the assumption that the added cost is not going to be too high. Will it really make a difference to your bottom line?
The reality is that the costs become significant when you are making regular payments, as well as when you are buying something particularly expensive. Where you are buying from also makes a difference.
Fluctuating exchange rates may not make a significant difference when you are paying for something priced in euros or US dollars. However, other currencies are far more volatile. What you pay a seller one day might be very different to what you would pay them the next. If you are making partial payments over time, one lump sum might differ from the next, even though they are supposed to be the same.
The transaction fees you pay depends on the payment portal as well as the account you are using. Local banks can be expensive. Services like PayPal can also cost a lot of money for foreign exchange transfers.
What is the alternative?
Paying for small purchases in foreign currency
Before going into major purchases, let’s focus on the smaller purchases. If your purchase does not require regular payments, your best bet is to use a multi-currency bank account. This is an account that allows you to store money in multiple currencies. You transfer money from pounds into the other currency – or receive payments in that currency – and use that money to pay the seller directly.
The benefit of the best multi-currency accounts is that you are charged minimal fees and get the best exchange rate available. Of course, if this type of purchase is rare for you, it probably won’t harm you to just use the payment portal as usual. You'll pay a bit extra, but you will save time and effort.
Paying for luxury items in foreign currency
Now, let’s say you are buying luxury items abroad, such as antique furniture or expensive art. You are going to need to make big payments into a foreign bank account, and may even have to make multiple payments. If so, you will want to know how to pay a bank abroad for cheap.
This is where international money transfer companies become extremely useful. Money transfer companies provide the service of transferring your money abroad without high fees. They exchange currency at the best rates available, rather than the unfavourable rate usually provided by big banks. They can also help you pay multiple instalments at the current exchange rate, even though you are only going to make those payments in future.
There are a number of excellent international money transfer companies based in the UK. If you're looking for the best service provider available, take a look at this guide about that topic. The top options listed there will all provide excellent service, although they may each provide specific features that are useful to you.
The same payment methods can be used when you are purchasing a home abroad. Property purchases generally require a number of big payments over a specific period of time, and the costs of foreign exchange make a huge difference.
Receiving payments
Finally, it is worth mentioning the best way to receive foreign payments if you are an online seller. Ideally, you should provide a way for people to pay in multiple currencies from around the world. This facilitates easier sales abroad, opening you up to a much wider customer-base.
It also ensures that your foreign customers have a better ecommerce experience when buying from you. This makes them more likely to buy from you in future and to recommend you to friends in their location.
Making payments online is easier than ever, but that can lead us to be complacent with how we pay foreign accounts. The above information provides you with the best way to transfer money abroad without unnecessary fees.
July 2022
In collaboration with Money Transfer Comparison