How to accept international payments
In many ways, ecommerce businesses are borderless. If you can market to international customers and you’re working with a reputable courier that delivers globally, the world is your oyster.
But what about international payments? It’s one thing selling internationally, but your business will need to accept international payments as well.
Alastair Tempest, CEO of the Ecommerce Forum South Africa, shares some insights into what ecommerce businesses should know about international payments.
1. Understand the regulations governing international funds
“The overarching rules on handling remittances from abroad come from the South African Reserve Bank (SARB),” says Tempest. “SARB requires companies to justify what and why they are receiving payments. For example, if you are dealing in US dollars, and you feel that it would be best for you to keep a bank account in dollars, SARB will need to know why and be satisfied that the dollar account is not being used for other purposes, such as money laundering.
“SARB also expects your bank to apply its regulations. Therefore, you will receive requests from your bank on the purposes of the remittances you get from your overseas customers.”
However, according to Tempest, using a recognised credit card system, such as UnionPay, Visa, Mastercard or PayPal, will reduce challenges a seller faces with EFTs in foreign currencies. It’s important to remember that credit card operators charge commission, and, in some cases, EFTs are a better or cheaper solution.
2. Review your bank’s rules
“We have noted that the different banks have their own rules when it comes to inward remittances in other currencies,” says Tempest. “These rules vary, and it is definitely worth researching each bank to see what their rules are and how much bureaucracy you may need to face when money flows in.
“In addition, some banks and credit card operators take more time to process incoming forex payments. This may also depend on the source of the payments and the currencies they are in. If you are working on a fast turnover, you will not want the bank or credit card operator to hold onto your liquidity, but then again you may be charged to have your money released quickly, which could eat into your profits unless you have built those costs into your prices.”
3. Understand the currencies you are dealing with
It’s also important to remember that the value of currencies vary all the time. Dealing with weak currencies can be a major headache, which is why using one of the three major global currencies is often advisable. The US dollar, European Euro or British pound can also fluctuate, but are less likely to suddenly depreciate against the Rand.
“The problem is that foreign customers much prefer to pay in their own currencies,” explains Tempest. “You can set up a system that provides a real time exchange rate for the buyer, but this moves the customer off your website, and research shows that the longer customers have to wait to complete payment, the more likely they are to drop their basket and abandon the payment process.”
The good news is that new solutions are regularly introduced to the market. “Some of these depend on mobile money, which tends to be quick and cheap. Companies like Flutterwave aggregate payment services to allow fast exchanges between users nationally and cross-border, and between banks, credit cards and mobile money operators. Other fintechs specialise in very small value money movements, to help informal traders and immigrants remit money to their families cross-border. mojaPay is an example of this type of payment app. During the COVID pandemic, thousands of very small enterprises have started to use social media (Tik Tok, Facebook, Instagram, WhatsApp, etc) to sell their products online. These fintech solutions for small payments will become an increasingly important aspect of ecommerce.”
4. Focus on Africa: New agreements are supporting Pan-African trade
The big change in Africa has been the Pan-African Payments and Settlement System (PAPSS), which was piloted in West Africa in 2021 and formally launched in January 2022.
PAPSS aims to provide a seamless system for cross border payments within the African continent, bringing together the Central Banks of most of the 55 African countries and the more that 40 different national currencies. “This will definitely make it much easier to do business within the African continent, as far as cross border payments are concerned,” explains Tempest. “The system also links into the three major global currencies. However, it will take time to be fully adopted.”
There are also regional solutions available for ecommerce businesses. For example, BankServAfrica, which was set up by South African banks, is launching a ‘Transactions Cleared on an Immediate Basis’ (TCIB) solution for the 16 SADC countries, which will provide a fast and cheap cross-border payment service. It is expected to be fully operational in mid-2022.
“Finally, the Central Banks Digital Currencies (CBDC), are starting to be adopted. These significantly reduce the time and risks connected to cross border trade by using blockchain to verify the players from the buyer to the seller and all the processes in between,” says Tempest. “SARB has announced a CBDC agreement with the central banks of Australia, Singapore and Malaysia to develop trade between these four countries, so if you are exporting to any of those countries you will benefit for a totally new and far more secure system.”
5. Understand how VAT works in the countries you are selling to
Value Added Tax (known in the USA as Sales Tax) varies from country to country and in the USA from state to state.
“In the past some countries did not charge VAT on imported products with small values. However, sadly that generosity is disappearing,” says Tempest. “In July 2021 the European Union started to impose VAT on all imported products, no matter what value. However, this rule will apply the “one-stop-shop” approach. In other words, in the future you should pay at the point of import and not in each country where you have sold the product.
“Many countries apply VAT at different rates depending to the type of product – most non-luxury foodstuffs and educational products are zero rated. In the UK, some categories of books are zero rated as well. Many countries have a general rate (something around 10% to 20%) for most products, and then a higher rate for luxury goods (which can be up to 50% of the value of the product).
“This means that if you are importing a lot into the EU, you might like to research the best country to enter the EU with the lowest VAT rate. That could save your customers quite a lot in tax, which may make a significant difference for a luxury product in a high-taxed EU country.
“It is very advisable to research the national VAT or Sales Tax rules and seek the advice of the Department of Trade and Industry and/or the Trade Offices of the countries you are targeting.”
6. Research customs duties and tariffs per region
Customs duties are applied to some products but not others, depending on the country of destination. The World Trade Organisation has a long list products on which the developed world has agreed in principle not to charge duties.
“In the USA, the AGOA agreement with African countries (including South Africa) lists over 1,300 products that will not attract customs duties when imported into the USA,” adds Tempest.
“Foodstuffs are generally excluded from these tariff-free agreements, however, which includes any combined products, such as a pottery jar that also has sweets in it. Tobacco and alcohol products, also nearly always attract customs tariffs or special duties.
“Other products that attract special interest from customs authorities include over-the-counter pharmaceuticals, prescription drugs, recreational drugs, live animals, stuffed animals and any forms of ‘muti’.”
On 1 January 2022 UK separated itself completely from the EU. “This means that if you used the UK to warehouse your goods before sending them on into the EU in the past, that system will no longer work, and you should plan to find a new centre in one of the EU countries,” advises Tempest. “Today, your products will be subject to the UK’s customs duties and any taxes on entry into the UK and then subject to EU tariffs and taxes when exported from the UK to the EU.”
When planning to sell products abroad, ask the DTI or the trade offices of the countries you plan to export to what customs and duty tariffs to expect. This is critical. Rules on both VAT and customs tariffs are extremely complex and vary from country to country. There is no one correct answer or process to follow.