Selling into multiple marketplaces is great because you can add new revenue streams with your existing line of products and you get to earn in different currencies. Earning different currencies is especially beneficial if your base currency of expenditure is weakening like the pound sterling and your earnings are currencies that are strengthening against your base like the USD for instance. Not so great if it’s the other way around.
The biggest issue for Amazon sellers are the hidden fees where Amazon makes a huge amount not only off Amazon sellers but also off Amazon buyers. Amazon will take around 3.2% to 4.5% off the wholesale exchange rate depending on the currency. What does this mean? Let me illustrate with an example. Let’s say that your disbursement is 10,000 cents from your European Amazon account and that it is being disbursed to your bank account in the US (which Amazon will convert to USD for you regardless of which currency the bank account is in — a sneaky way to force you to take Amazon’s conversion fees).
Amazon EU Disbursement: 10,000 cents
Conversion Rate as at December 29, 2016: 1.00 cent = $1.04
At this exchange rate, you should receive in your USA Bank account $10,400.
Of course, you’re not going to get that. Assuming that Amazon is going to take 4%, that means you’ll actually end up with $9,984. That’s a difference of $416. If your net pay from Amazon in a year is a million euros, that’ll work out to being $41,600 — enough to hire a full time employee for a year.
That’s great for Amazon, not so much for you. Firstly, you get screwed on the extortionate rates. Secondly, you don’t get invoiced for the amount that you lose on the currency exchange which means you can’t claim that as an expense.
So if you are doing a good amount of revenue in Amazon in a foreign currency, then you should definitely not let Amazon do the conversions for you.
There are a few options and and the best will depend on your situation.
Option 1. Open Local Bank Account
This is the option that I’ve gone for. I’ve opened a US dollar account in the US (even though I have a US dollar bank account in Australia, I can’t use it since Amazon will still convert the currency to Australian dollars because the bank account is in Australia). I’ve also got a GBP bank account in the UK. Since most of my supplies are priced in US dollars, I’ll still need to convert GBP to USD.
You can use the bank’s telegraphic transfer and conversion services which can also be quite expensive but usually cheaper than Amazon depending on the bank. I’ve found HSBC to provide pretty good rates.
You can also use an alternative transfer service like TransferWise which is my favourite mainly because you get very close to the actual wholesale rate and the difference shows up as separate cost from TransferWise.
Here is a screenshot from XE.com of the current exchange rate:
Here is a screenshot of what you’d get from TransferWise:
As you can see, the mid-market rate from XE is 1.04251 and from Transferwise is 1.04245 so pretty much the same. The only thing is that you will get charged 49.75 cents which you can expense whereas the 4% free from Amazon you can’t. Even with this fee, you will get a way better rate here than you’d ever get through a bank.
You can check the live rates here:
The disadvantage of having a local bank account is that you’ll most likely need to visit the bank in person and even then, there’s no guarantee that you’ll get the bank account opened. Banks around the world have gotten tougher with banking after FATCA and if you’re a US citizen or resident, a good majority of banks will just turn you away. You may need a local mailing address and sometimes proof of local address.
Option 2. WorldFirst
If you can’t open a bank account abroad or your revenues aren’t enough to justify the expense and hassle, then using a service like WorldFirst is the next best option.
They’ll open an account for you which you use for your Amazon deposits and then make transfers. You won’t get any banking related services — they’re really just for transferring to your own bank account or to suppliers and the foreign exchange rates that you get are always negotiated based on how much volume you can move.