Cross-Border Tips: It’s All About Currency

February 17, 2016

World FirstThere are many factors that merchants need to be aware of when selling overseas, and managing currency transfers isn’t always high on the agenda. But if you generate sales in a foreign currency or are thinking about expanding abroad, it’s likely top of mind. We sat down with World First to hear more about how currency can affect the success of your online business in 2016.                           

What were some of the e-commerce highlights you noticed in 2015?

What was interesting in 2015 was the way in which Black Friday turned itself from a largely in-store event to one that was conducted online, with 36% of sales taking place online. People turned their backs on the Black Friday bunfights and logged on for deals. In the UK, Black Friday topped the billion-pound mark in online sales for the first time – the figure was actually beyond £1.1bn, according to IMRG and Experian. Over the course of the Black Friday/Cyber Monday weekend, Brits spent, in total, £3.3 billion, with a significant portion of that spent online.

What trends should online retailers look out for this year?

Research carried out by Ecommerce Foundation finds that retailers estimate that global marketplaces will own 40% of the global online retail market by 2020. Online sellers are enjoying a real boom at the moment, and for those that aren’t making the most of online, they really ought to be asking themselves a few questions. Is it easy for consumers to buy their products online? Can they sell internationally?

What are the main challenges for online sellers?

Bank Accounts: Listing on foreign marketplaces often requires you to set up a local bank account, into which you can receive marketplace revenues, before transferring them back to your home bank account.

Pricing: Price your products based on the exchange rate at the time, the competition you face in that market and what it will cost for you to fulfil that service – that is, will you actually make a profit?

Fees: You’ll often encounter hidden foreign exchange costs when repatriating funds. Whether it’s additional fees or poor exchange rates, you could be paying more than you need to.

What could fluctuating exchange rates mean for online sellers in 2016?

As always with currency markets, they can cause uncertainty through their fluctuations. Events to look out for this year that could cause currency fluctuations: a potential referendum on the UK’s membership in the EU, French and German elections, and the US election at the end of the year.

As an example of what effect fluctuating rates could have on your business, let’s look at how the £ GBP / $ USD rate moved over the key Christmas period: In early November 2015, the rate was as high as 1.54, but by January 2016, the rate had dropped as low as 1.42. If you were repatriating $10,000 of revenue, that could mean a difference of over £500 on your bottom line.

So how do you avoid this uncertainty? Secure an exchange rate. With what’s known as a forward contract, you can fix an exchange rate for a transfer that has to be made in the future. If the rate should go against you in the time between agreeing a rate and the transfer going through, you’ll be unaffected. But should the rate change in your favour, you won’t be able to benefit from the better rate. The advantage, though, is certainty. You’ll know exactly what the rate will be, so you’ll be able to budget for it.

Are there any markets that are particularly appealing for online sellers?

If you haven’t explored beyond eBay and Amazon just yet, there are plenty of other great marketplaces you could be selling on around the world – see this blog post on some of the alternatives.

Anything else retailers should be prepared for?

Be aware of the currency impact on overseas supplier payments, which could push up the amount you’re paying. Take stock of these figures as you may need to factor them into the price you’re selling your products at.

For more information on how World First can help cross-border merchants, visit worldfirst.com or contact their dedicated e-commerce team directly on 020 7801 1051.