What are FX Rates in SaaS billing?

FX rate in SaaS billing refers to the exchange rate utilized when a payment, settlement, renewal, or refund scenario involves a conversion of one currency to a different one. The rate defines the value exchanged between currencies, but the exact rate may differ according to who is performing the conversion and when.

Cross-currency payments can involve several types of exchange rates, but they do not form one fixed sequence.

If​‍​‌‍​‍‌ a card network performs a currency conversion, it usually is because it deals with different transaction and cardholder currencies. The effective rate of payment and the time of its occurrence are mostly factors depending on the network and the transaction process. A few cards are issued such that users get to know the rate they are paying at day-end or after processing a card transaction. In cases of certain payment flows, the same conversion rate can be used for all authorization, clearing, and settlement steps.

An FX event is when one currency is exchanged into a different one for an amount of money.

Examples could include:

• Customer billing utilizes a currency distinct from the transaction currency;
• A card network or issuer has already converted the amount of the transaction to the cardholder’s billing currency;
• A merchant gets the payment after conversion of the currency;
• A recurring payment is processed for conversion subsequent to its expiration;
• A refund is made in a situation of a cross-currency payment.

A recurring charge is a newly created transaction, so the applicable FX rate may vary from the rate used for the original purchase.

FX rate is the rate of exchange used to convert one currency into another. A card issuer or payment service provider may impose an FX or foreign-transaction fee under an independent agreement, which is a separate charge. Dynamic Currency Conversion (DCC) exhibits distinct characteristics.

Businesses doing international trade through a payment gateway should follow and verify how currencies are treated and which conversion rules are involved.

Useful data points include:

• Transaction currency;
• Cardholder billing currency;
• Merchant settlement currency;
• Exchange rate used where visible;
• Separate FX or cross-border fees;
• Renewal amounts;
• Refund differences.

An overview of such a case helps the finance and payment team to provide explanations; for example, the customer payment amount differs from the company’s settled amount.

In a subscription service model, monthly recurring charges are closely linked to the fact that such transactions automatically react to fluctuations in currency exchange rates since the renewals will be regarded as purchasing activities. Therefore, if even the initial subscription amount does not change, a variation in the currency conversion rate or the fee structure of the billing cycle, for instance, can affect the actual payment amount, either the amount charged to the cardholder or the one received by the merchant. However, such a situation can be considered a legitimate billing without any billing error, showing that a new currency exchange rate or a new fee arrangement has been put in ​‍​‌‍​‍‌place.