The Green Sheet Online Edition
December 28, 2009 • Issue 09:12:02
Defining global processing
Shakespeare wrote that "a rose by any other name would smell as sweet." And when it comes to global processing, different terms don't always mean different processes. This article contains a mini dictionary of popular terms used in the rapidly growing realm of worldwide card-not-present processing.
Cross currency payment processing and synonyms
The synonyms in this section indicate the perspectives of the parties that coined them.
- Cross currency payment processing: This term reflects the merchant's view of worldwide card-not-present processing. It describes transactions in which consumers shop in their respective currencies and merchants settle transactions in their respective currencies. Merchants keep their books, manage their monies and do their own pricing in their base currencies. For most U.S. merchants, that's U.S. dollars (USD).
Here's an example: Suppose a customer from France wants to shop with a U.S. merchant in a different currency than USD, say euros. The merchant wants to function in USD but wants the international customer to have a comfortable, positive shopping experience. So the merchant asks to authorize the transaction in euros but settle in USD.
- Cross border payment transactions: This is a synonym for cross currency payment processing. It is often used interchangeably with international payment processing.
- International payment processing: This term is synonymous with cross currency payment processing.
- Multiple currency processing: This is another synonym for cross currency payment processing.
- Multiple currency authorization: This term is also synonymous with cross currency payment processing. It emphasizes that a transaction is authorized in one currency and settled in another.
Why the need for different terms to describe the same thing? The industry has struggled to define international processing, and marketing departments of leading processors have coined different phrases. They all mean the same thing: the customer shops in one currency and the merchant receives settlement in his or her own base currency.
- Global e-pricing: This term is used in conjunction with cross currency payment processing. When
a merchant requests such processing, the merchant's processing partner provides a schedule of global pricing. That schedule sets forth global e-pricing guidelines.
- International acquiring: Also referred to as domestic global acquiring, this term defines an acquirer licensed in multiple regions. An acquirer can be licensed with the card brands in six regions throughout the world: the United States; Canada; Europe, Middle East and Africa (EMEA); Latin America and the Caribbean (LAC); Asia Pacific (AP); the region defined by MasterCard as South Asia, Middle East and Africa (SAMEA); and the region defined by Visa Inc. as Central Europe, Middle East and Africa (CEMEA).
When an acquirer has, or has sponsored, bank identification numbers (BINs) in multiple regions, it becomes a global acquirer. International acquirers can offer merchants domestic or intraregional interchange in those regions.
- Multiple currency conversion (MCC): Often merchants can't settle in a given currency but need that currency for certain payments, such as business expenses. Therefore, they will authorize in the currency they need, settle in another and convert back to the original currency. There is no hedging (in this context, a type of risk management used to protect a business from exchange rate uncertainty) but simply conversion at an exchange rate. MCC is provided by acquirers on behalf of merchants.
- Multiple currency management (MCM): This is when a merchant hedges a transaction at the time of authorization through the life cycle of the transaction to include settlement, refunds and chargebacks, enabling the merchant to avoid the potential for currency fluctuation.
For large, public, multinational companies that have Sarbanes-Oxley restrictions (a way of accounting that requires every transaction be transparent and thoroughly auditable), hedging a payment at the time of authorization and using that exchange rate through its life cycle is crucial for transactions that involve multiple currencies. Every exchange rate pair (the two currencies involved) must be defined. MCM is also necessary for smaller companies because they require no fluctuations in currency for their merchant transactions as well.
Card-present and beyond
Dynamic currency conversion (DCC) refers to a special type of terminal application, written and certified by terminal manufacturers. It pertains to a card-present process that occurs at the POS. (Remember, other terms discussed herein concern the card-not-present arena.) DCC recognizes that the cardholder is presenting a card that has been denominated by an issuer in a country foreign to the merchant. It enables consumers to purchase in their own currencies. And card companies require the exchange rate be printed on the receipt.
No matter what terminology you prefer, it is important that the international processing partner you select fully understands all terms in use. It is also crucial that your acquirer possess a strong working knowledge of processing options to meet your merchants' needs and, more importantly, can speak to merchants, understand their specific international processing requirements - and make the appropriate recommendations to successfully serve them.
Carrie (Bardeen) Hometh is a respected industry professional in the international marketplace with over two decades of global experience and expertise. She currently serves as Senior Vice President of Sales and Marketing for Payvision, a leading international payment solutions provider that offers a comprehensive suite of products and services that include global acquiring, multicurrency processing and alternative payment solutions. She can be contacted at firstname.lastname@example.org.
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