The FX of e-tailing

The growth prospects are enticing, but retailers intent on
expanding need to take into consideration the complexities of managing global
transactions. More than half of retailers are actively looking to increase their
international trade, while only one in five retailers do not intend to sell
products overseas. Consequently, eBay predict that 20% of all e-commerce will be
cross-border trading by 2017. This highlights the importance of managing
international transactions effectively.

With an increasingly mature
e-commerce market in the UK, international expansion will be the focus
over the next five years for British e-tailers as they look for new revenue
opportunities. In effect, over a third of e-tailers are expanding abroad purely
because they see a customer demand for their product. Platforms such as Amazon
or eBay give e-tailers an easy way to sell internationally, or even just test
specific markets. This simple way of trading internationally means increased use
of checkout systems such as Paypal and direct bank transfers in some locations.
E-tailers need to start preparing and exploring the flexibility and value of
these systems when it comes to exchange rates.

But there are
insidious foreign exchange (FX) hurdles waiting to trip up businesses’
profitability, which can be difficult to clear even for savvy currency experts.
This is in addition to other barriers such as the patchwork of cross-border tax
issues – value added tax (VAT) and sales tax vary in their enforcement across
countries – and the heightened risk of card fraud inherent in accepting an increased
level of international payments.

As overseas sales grow, the process
of getting money back to your home country and local currency is neither straightforward nor cost effective. In some cases, e-tailers are required to have a
local bank account in a particular country for which 4% will be charged to
convert into the local currency. Setting up international bank accounts
and using FX experts can mean better exchange rates, but also
better economic management of transfers. It is worth noting that if you are
listing products on international online marketplaces such as Amazon and
eBay, there may be restrictions on which countries you are able to sell into,
depending on how you are able to receive payment; for example, you will need to
have a euro bank account located on the eurozone mainland to sell on
Amazon Italy.

Benefits of e-tailing

Naturally, there are
positives to international sales also, in addition to winning new customers in
multiple markets. Dynamic currency conversion (DCC) – the ability to offer the
customers prices in multiple currencies – is gaining traction with online
retailers. Despite the drawbacks for the customer – the merchant carries
out the FX transaction and can set exchange rates to their
advantage – DCC provides an opportunity for treasury departments to get more
hands-on at the point of sale (PoS), and generate additional revenue from this
system.

Another positive is that e-tailers can boost their
profitability by managing their FX transactions better. Local cash management is paramount, as treasuries should focus on
the netting of flows of the same currency where possible: sales generated in euros
should be kept in that currency and used to pay suppliers in the eurozone and to settle their tax obligations without FX
conversion. As mentioned above, access to a local bank account is key for 
businesses seeking to keep conversion rates down.

The next step is localising
your offer: it is important that you enable clients to make payments to you
more easily and cost effectively by giving them a local bank account to pay
into. Price your product in the local currency to enable the customer to compare
with their local suppliers.

Finally, e-tailers need to optimise
their input and output cost. If you buy in one currency but sell in another, you
are creating an FX exposure on two counts: through the loss
realised by converting from one currency to another, and also the potential for
exchange rate movement over a period of time – especially if the product selling
price is fixed.

E-tailers are already making a bold move by stepping
into the international marketplace; they need to make those tentative first
steps less precarious by reducing the cost of their banking and transactions.
Negotiations should be made with banks to reduce transaction costs as much as
possible. If they don’t budge, e-tailers need to vote with their feet and use a
more cost effective mechanism. Allowing your bank to carry out all of your
FX transactions in the unfounded belief that you will receive cheaper
borrowing costs is not the way to run a business; instead, outsource to a
specialist provider who can help you walk that path to international success.

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