Banking internationally and converting currency used to be a far more complex and expensive process than it is now in the 2020s. There are new tools which are specifically created to help you do this quickly and cheaply. But you need to be vigilant on both the risks and the sneaky ways you might get charged.
Let's discuss your options as a US brand launching in the UK and taking payments in pound sterling (£GBP).
Most traditional UK banks require a business to have some form of physical presence in the UK, such as an office or director. There are stringent anti-money laundering checks and ‘know your customer’ procedures which will require comprehensive documentation, and foreign businesses - from the US or anywhere else - should expect to undergo more vigorous scrutiny. Some banks are more experienced in dealing with non-resident businesses and do not require a physical presence.
Your existing US bank may even operate in the UK and be able to set up a new £GBP account for you - though this may not be the cheapest route. There's two main charges you want to watch out for, whichever bank or service you choose to work with:
A UK bank account isn’t strictly speaking a necessity. Firstly, the payment processor on your website (Stripe, Paypal etc) should be able to accept transactions in £GBP and automatically convert to $USD before sending on to your US bank account, albeit subject to one or both of the two types of charge mentioned above. If you want to avoid this automatic conversion so you can withdraw £GBP to convert elsewhere, you'll need to change the default settings on your payment processor account(s) to specify that you want to hold multiple currencies within your account (they may require you to provide a UK account number and sort code to enable this).
A second reason for not necessarily needing a UK-based or £GBP account is that UK suppliers should be able to share international bank details with you, allowing you to pay them through your US bank, which should be happy to convert $USD to £GBP at the point of transaction, though this will be slow and again at an unfavourable rate with possible additional charges.
Using a specialist multi-currency bank account is an easier and cheaper option for an ecommerce business trading internationally.
Digital banks such as Wise (*using this link, signing up and making a transfer gives you an initial fee-free transfer and earns this website a small referral fee) allow you to open an account in your home currency, subject to various personal and business checks, and then set up multiple linked foreign currency accounts, all accessible via the same online dashboard. This should allow you to get a UK bank account number and 'sort code' (which is the equivalent of a US 'routing number').
You can switch funds immediately from $USD to £GBP or vice versa at a low rate (see point 2 above!), and then pay out in £GBP from the UK account to other UK banks or in $USD from the US account to your original business checking account back home. The UK’s payments system normally settles transactions within hours. If transferring funds out to the US, expect to wait 24 hours or so for funds to clear.
Once you have a £GBP account, you should be able to set up your website’s payment provider(s) to deposit £GBP funds there rather than automatically converting to $USD themselves. Then you can exchange your £GBP to $USD at what should be an improved rate with your account provider.
Don't forget, initially you'll want to keep plenty of funds in £GBP, so you can pay any UK suppliers such as a 3PL, local freelancers or the UK taxman for VAT, all of whom will probably prefer pounds to dollars. As you grow your business in the UK, however, you’re likely to build up a £GBP balance and want to convert a larger amount to $USD at some point.
Just be aware that normal government-backed deposit and regulatory protections may not apply to some digital or specialist banks. This is important, because it means that if the exchange or bank were to suffer from a run or other crisis, you might not get all your money back. Institutions like Wise have been around for many years and have various protections in place, but ultimately the government won't have your back like they might with other banks.
The obvious solution is just to make sure that you don't leave all your business's funds in the same account. Once you've converted £GBP to $USD, there's no reason not to withdraw to the main checking account you'd use for day-to-day business expenses.
The $USD/£GBP exchange rate is changing all the time and you may even benefit from swings while waiting to convert. You may wish to time this carefully, although most importantly you’ll want to make sure you’re getting the best rate possible, which might not be with your bank even if it's a specialist multi-currency bank.
This is where you might want to consider working with a separate currency exchange service. Whether or not it’s worth seeking out a specialist exchange service will of course depend on the amount you wish to convert, but savings of at least 0.5% of the amount exchanged should be possible.
To recap and summarise all of the above, here's an example 'optimal' pathway your funds might follow, showing where you might convert and exchange currency along the route:
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