In 1994, when the Internet had yet to become the commercial and cultural powerhouse it is today, RocketPay LLC Managing Director Carrie Hometh was talking with other payments industry veterans about a future where encrypted transactions could be sent over the web. At the time, Hometh was with a firm that wrote the code for CyberCash Inc., which was then on the forefront of web-based payments (CyberCash founder, Bill Melton, founded VeriFone Inc. in 1981).
Drawing from a background in international payments, Hometh jumped into the world of international acquiring in 2001, and she never looked back. At the end of 2010, Hometh and her husband, Rod Hometh, founded RocketPay, a consulting company that would help domestic ISOs and acquirers negotiate the tricky business of expanding their businesses to places across the globe.
Among the central issues globalizing acquirers must contend with are:
Helping acquirers make all of these decisions is the specialty of RocketPay. "RocketPay advises on all aspects of an acquirer's decision to globalize their payment infrastructure," Hometh said. "You can't just one day say, 'Let's go sell in Europe'; you have to receive sponsorship in another place, and you have to exchange concerns - such as whether to hedge or let merchants manage their own foreign currency exposure, based on where your existing merchants want to operate, as well as where you think a good place would be to acquire new merchants."
For ISOs operating in Europe, there is also the matter of deciding whether and how to become a fully licensed acquirer of the major card brands or to forgo the full licensing and operate under a proprietary bank, as is required in the United States.
"Access to the card scheme is mission critical," Hometh said. "It's the most important thing, and [acquirers] can't conduct business without it. So when they have full control over their own licensing, they also have full control over their own underwriting.
"In the United States [where ISOs are not fully licensed members], they can give approval for merchants, but a proprietary company must still approve that application to begin operating. As a full proprietary member, you don't have to do that anymore. It adds credibility and decreases the costs of organization, because it eliminates the need for a third party."
However, becoming a fully licensed acquirer in the European Union region requires a physical presence in the region, which can present challenges that outweigh the benefits of autonomy for some acquiring businesses, Hometh said. "You have to be domiciled in Europe," she said. "It's easy to become incorporated [as a transacting entity], but to be domiciled means you have personnel and legal requirements. ... You are running a multinational business."
A central issue for international acquiring is the role of currency, two central aspects of which are marketing currency and settlement currency. "Worldwide, consumers prefer to shop and buy in the currency of their own choosing," Hometh said. "This can be called a marketing currency; our industry would call this an authorization currency.
"There are significantly fewer settlement currencies to authorization currencies. The merchant must decide what settlement currencies are best for their treasury requirements. It could be that the merchant has expenses in euro, for example, or suppliers they need to pay in euro. So the business issues are different" merchant to merchant.
Consumers are generally more comfortable paying in their currency of choice, both because they're familiar with its value and because they tend to trust it more than they do a foreign alternative, Hometh said. Offering customers in China the ability to pay in yuan, or in Japan to pay in yen or in India to pay in rupees can boost revenues by decreasing shopping cart abandonment and increasing return customers, she added.
Hometh said acquirers with an international presence - be it in two, 10 or 80 different countries - may offer currency conversion services to merchants who prefer to receive settlement in their operating currency without experiencing potential fluctuation.
But acquirers that offer conversion of marketing currency to merchants must also decide whether they want to settle in the foreign currencies offered, or if they want those currencies converted back to their normal operating currency for bank settlement.
How a company addresses currency depends largely on its merchants' back-end treasury requirements, and it's essential to set up the process to meet those requirements, Hometh emphasized. RocketPay comes into the equation as an intermediate party acting between an acquirer and its merchants, helping to assess the needs of a merchant base and advising the acquirer accordingly.
A U.S.-based company doing cross-border transactions whose merchants operate primarily in U.S. dollars is likely to forge a banking relationship that converts its foreign currency payments back to dollars for settlement, Hometh noted. A U.S. merchant may want to accept payments in a number of currencies but want to be paid in U.S. dollars and not have to manage accounts and do bookkeeping in all those different currencies. "That's a perfect time to talk about foreign exchange," she said
Hometh noted that merchants may choose to have multiple currency bank accounts for euro settlement, for example, but this will mean the acquirer must be able to settle in euro. "Like-to-like transactions will not experience any currency fluctuation as they are never converted," she said.
By providing like-to-like processing to merchants that need the international currency, they do negate the risk posed, she added.
"When a merchant is authorizing in one currency and settling in another currency there is the potential for fluctuation," Hometh said. "If the merchant is settling in euro, for example, fluctuation is dependent on what currency the transaction is authorized in. ... These are the types of things we advise on."
Choosing the right acquiring bank is crucial for deciding what region a company is licensed in, how many settlement currencies it offers, how its underwriting and back-office operations are managed and whether it offers a foreign exchange solution, Hometh said.
"We speak to the treasurer or CFO to try to understand their currency requirements and operating needs," Hometh said. "And it usually becomes clear if they need currency processed in a like-to-like manner - if they process in Japanese yen, then they [may or may not] want to settle in yen; only the merchant will know whether they need the transaction to be settled in yen - or if they want it converted to" another currency.
Currency, however, is just one of several factors that are weighed for selecting acquiring and processing partners overseas. Hometh said different regions around the world have different standards for underwriting, risk management and payment acceptance.
For example, Address Verification Service, a common fraud fighting tool in the United States, isn't used in many countries worldwide, where different fraud tools are employed.
Hometh said she refers international acquirers to companies that have the expertise they require. "It depends on the situation," she said. "If it's authentication, I'd go right to Cardinal Commerce. If it's, 'Help me find an acquirer in Europe,' I'd boil it down to a top five, we'd get presentations and proposals, look at their underwriting, and we'd prepare for a product launch to make sure everyone's been properly trained to launch a global acquiring operation."
On the marketing end, international merchants face the barriers of diverse languages and cultures, which are surmounted through the use of translation, Internet Protocol geo-location technology tools, country-specific websites and so on.
Then there is learning a foreign region's payment language. Certain universal payments, like the major credit cards, are already familiar to any acquiring outfit, but sales people have to familiarize themselves with the alternative payments that are region-specific, such as e-wallets, vouchers, prepayments and country-specific processes for invoicing, Hometh said. There are also more general branding and marketing issues that apply to every global e-commerce venture, according to Hometh.
"Merchants may ask things like, 'Should I use geo-location to see where customers are coming from?' Or, to convert to foreign currency, 'should there be a drop down menu or should I have specific pages for each type of currency?' There are a lot of marketing questions," Hometh said.
For high-risk merchants, there is the additional challenge of finding countries in which to operate.
"You have to treat high-risk merchants differently because certain banks accept high risk, but others won't," Hometh said. "For example, very few European acquirers accept multilevel marketing merchants, and that's normal in the United States. But very few United States acquirers accept adult merchants, and there are quite a few in Europe."
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