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Global Banking

Credit Cards for Business Transactions: Convenient or Costly for SMBs?

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In North America, the reliance of Small and Medium-sized Businesses (SMBs) on credit cards for Accounts Payable and Receivable is significant. For instance, a report by Visa indicates that nearly 67% of small businesses in the U.S. use credit cards for operational expenses. While credit cards offer convenience and rewards, the real question arises when these businesses engage in global transactions.

The Global Transaction Puzzle: Credit Card Limitations

  • Unfavorable Exchange Rates: Often, credit card providers use exchange rates that are 2-4% higher than the market rate. This discrepancy can substantially inflate costs in cross-border transactions.

  • Volume of International Transactions: With global e-commerce sales projected to hit $4.89 trillion in 2021, the volume of international transactions is skyrocketing, making cost-efficient methods more crucial than ever.

  • Domestic vs. International Credit Card Use for SMBs: While credit cards offer cashback and benefits for domestic spending, they can be costly for international transactions. SMBs using credit cards for global bills may face high expenses. Engaging in direct bank transfers can be more advantageous. Often, suppliers are willing to offer better discounts for bank transfers compared to the 1% cashback from credit cards, as accepting credit card payments costs them a minimum 3% fee. This preference for bank transfers over credit cards is more pronounced in international dealings due to these cost differences. Furthermore, statistics show that credit card foreign transaction fees can range from 2.5% to 3.5% per transaction. For an SMB handling $100,000 in international payments annually, this could mean an additional $2,500 to $3,500 in fees hidden in a worse exchange rate. 

Finofo: A Multi-Wallet Paradigm Shift for SMBs

Finofo emerges as a game-changer for SMBs engaging in international trade, providing a robust global multi-currency account solution that addresses the inefficiencies of credit card usage.

  • Utilize multi-currency bank accounts for optimal financial management in international trade. These accounts enable businesses to conduct bank transfers with ease in various currencies as if they were local entities, offering several advantages.

  • Instant Payments: Funds are transferred rapidly, ensuring that suppliers receive payments without delay.

Superior Exchange Rates: Compared to the standard 3% foreign exchange charge on most business credit cards, even after accounting for a 1% cashback, there's still a 2% cost. In contrast, Finofo offers significant savings, often exceeding 50% per transaction, making it a financially savvy choice for businesses expanding globally.

A glimpse of how conversions happen with Finofo

In the pursuit of global growth, businesses must reconsider their financial strategies. While credit cards may suffice for local transactions, international endeavors require cost-effective alternatives like Finofo. This shift towards strategic financial planning is essential for SMBs seeking international expansion while keeping expenses in check. For businesses eyeing the global market, the choice of financial tools can be a make-or-break decision. 

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Karthikeyan Sundaram