For businesses, the FX spread matters because it affects the total amount received or paid. Even a small difference can add up when handling large or frequent transactions. High FX spreads reduce profit margins and increase costs for cross-border sales. Keeping track of these spreads helps businesses plan better and avoid hidden losses.
Table of Contents
Table of Contents
How Currency Conversion Works in Stripe
Currency conversion in Stripe takes place when a customer pays in a different currency than the one your business account uses. Stripe automatically converts the payment into your default payout currency. This process is automatic, so you don’t need to manage separate exchanges. Stripe uses real-time exchange rates but also adds a small margin called the FX spread. This margin is the extra cost businesses pay on top of the market rate.
For customers, the experience is smooth. They can pay in their own local currency, which makes checkout easy and builds trust. On your side, you receive the payment in your chosen currency, like USD, GBP, or EUR, without needing to manually exchange money. Stripe takes care of the background process, ensuring transactions are fast and reliable.
However, this convenience comes at a cost. Each conversion reduces the amount you finally receive. Even if the percentage seems small, frequent or high-value transactions can create noticeable losses. That is why knowing the exact working of Stripe’s currency conversion is important.
FX Spread and Its Impact on Businesses
FX spread is the small difference added to the exchange rate when converting money from one currency to another. Stripe uses the market exchange rate but includes a margin on top, which becomes the cost for businesses. This cost may look small, but it directly affects the amount you get after a transaction. For companies dealing with international sales, the FX spread is a regular expense.
The impact of FX spread is more noticeable when transactions are frequent or high in value. For example, if you receive hundreds of payments from customers abroad, each one will carry a small fee through the spread. Over time, these small amounts add up and reduce the actual money your business keeps. It can quietly eat into your profit without you realizing it.
This also affects how businesses plan prices for global customers. If you don’t account for FX spread, your earnings may be less than expected. It can make products or services more costly for the business, which may limit flexibility in discounts or offers. Being aware of the spread helps set smarter pricing.
Factors Affecting Stripe’s FX Rates
Market Exchange Rates
The live market exchange rate is the base Stripe uses for conversions. It changes throughout the day depending on global currency markets. Stripe takes this rate as a starting point but adds a margin, known as the FX spread, to cover its costs and risks.
Currency Pair Involved
The type of currency pair also affects the rate. Common and stable pairs like USD to EUR have smaller spreads. Less traded or volatile currencies often carry higher spreads. This means businesses dealing in rare currencies usually face more conversion costs.
Transaction Volume and Business Profile
Stripe looks at the size and profile of the business. Larger companies or those processing high transaction volumes may qualify for custom rates. Smaller businesses, however, usually pay the standard FX spread with no special adjustments.
Global Market Conditions
Exchange rates are also shaped by global events such as inflation, interest rates, or political changes. Stripe updates its rates based on these conditions to manage risk. For businesses, this means FX costs can rise or fall depending on the global environment.
Hidden Costs in FX Transactions
When using Stripe for international payments, the FX spread is not the only cost. There are often hidden charges that reduce the final payout. These are not always obvious but can make a real difference in earnings. On average, Stripe adds about 1% to 2% FX spread on top of the market exchange rate. This cost is included in every currency conversion.
One common hidden cost is Stripe’s processing fee, which is usually 2.9% + 30¢ per transaction for international cards. When this combines with the FX spread, the total cost of accepting payments in another currency can reach 4% to 5% per transaction. For businesses handling many cross-border payments, this becomes a significant expense.
Repeated conversions are another hidden cost. If money moves through multiple currencies, each conversion carries its own spread and fee. For example, receiving payments in EUR and converting them to USD, and then transferring again to a local currency, multiplies the cost.
Methods to Minimize FX Spread
Using Multi-Currency Bank Accounts
One effective way to reduce FX spread is by receiving payments in the same currency your customers use. For example, if you get paid in EUR, you can hold the funds in EUR instead of converting them to USD right away. This avoids unnecessary conversions and lowers costs.
Timing Your Conversions
Exchange rates change all the time. By monitoring them, you can choose to convert funds when the rate is better. Even a small shift in rates can save money, especially for businesses processing large or frequent payments.
Negotiating Custom Rates with Stripe
For businesses handling high transaction volumes, Stripe sometimes offers custom rates. These are better than standard spreads and can lower overall costs. Larger businesses often benefit the most from this option.
Using Third-Party Currency Tools
External platforms sometimes offer lower spreads than Stripe. Using them to transfer money between currencies can reduce expenses. While it adds an extra step, it helps businesses that work across multiple countries keep more of their earnings.
Conclusion
Managing FX spread is important for any business using Stripe for international payments. Small costs on each transaction can add up and reduce profit. By understanding how Stripe’s currency conversion works, you can make smarter choices to keep more of your earnings.
Simple steps like using multi-currency accounts, watching exchange rates, or negotiating custom rates can make a big difference. Third-party tools can also help lower costs. The key is to stay aware and plan ahead. Minimizing FX spread is not just about saving money, but also about keeping your business stronger in global markets.
