The widespread adoption of smartphones and increased demand for convenient and secure transactions has contributed to the growth of the mobile payment industry. However, mobile payment providers have faced several challenges, including currency exchange fluctuations. These fluctuations can cause difficulty for companies involved in cross-border transactions, impacting profitability and credibility.
As a mobile payment provider, keeping tabs on the changes in currency exchange rates can help you understand potential foreign exchange risks and devise strategies to keep your business relevant. Here’s an insight into how to identify these risks and implement the best practices to alleviate them.
Understanding Currency Exchange Risks in Mobile Payments
Depending on several factors, fluctuation in currency exchange rates can be harmful or profitable for a business. Many risks are associated with currency exchange in mobile payments, including volatility, delayed transaction, regulatory compliance, etc. However, the significant risk involved in currency exchange fluctuations is the change in transaction value in the case of multiple currencies. As a result, mobile payment providers must keep tabs on currency instability and adjust when needed.
The DXY chart can help mobile payment providers monitor exchange rates by providing historical and real-time price movement and the strength of the US dollar against other currencies. In a simple yet informative graph, it shows how the USD gains or loses power compared to other currencies like the Canadian dollar (CAD), pound sterling (GBP), euro (EUR), Swedish krona (SEK), Swiss franc (CHF), and Japanese yen (JPY). Mobile payment providers can leverage the technical analysis tools provided on this chart to analyze price trends and make informed decisions to keep their services relevant.
Best Practices for Mobile Payment Providers
There’s no one-size-fits-all approach to shielding your mobile payment platform/business from currency exchange risks. However, currency hedging, diversification of currency exposure, negotiating with your banking partner, and planning are some strategies you can implement.
Many firms use currency hedging to protect their businesses from unfavorable exchange rate movements. While it doesn’t guarantee success every time, hedging helps to mitigate fluctuations by locking in a favorable rate for a specified period. This method is called a forward contract and can be valuable if a payment provider expects future transactions in a foreign currency. That way, the consumer pays the same rate in his local money, and the seller doesn’t risk losing.
Other hedging strategies, such as ‘currency options,’ give the payment provider the right to transact at a fixed rate and specific date. It is important to note that currency options have pros and cons; hence the payment provider must weigh both options beforehand. In addition to currency hedging, mobile payment platforms can mitigate currency fluctuation risks by diversifying their currency exposure. Instead of putting all their eggs in one basket, they can offer payment services in more than one currency, such as adding British pounds, euros, and others to their USD-only service. That way, the customer can make payments directly in their local currency without inflicting currency exchange risk.
The mobile payment industry keeps growing in the global market and won’t collapse due to the fluctuations in currency exchange. However, mobile transaction providers mustn’t ignore these threats at the expense of their business credibility and profit. Instead, they must keep learning about these risks and counter them with the right strategies to stay competitive.