Managing Risk and Supporting Growth in the E-commerce Era

Treasury and Trade Solutions 11 4. Cross-border sales and FX impact Cross-border e-commerce is becoming increasingly prevalent — industry analysis indicates that 57% of online shoppers worldwide are purchasing from overseas retailers. 6 Consequently, as companies pivot to e-commerce growth, setting up a localised experience for international shoppers on the platform while mitigating related FX risks is important. Treasury can demonstrate its expertise and work collaboratively with the business on the optimal setup. Multi-currency pricing for cross-border e-commerce sales For companies selling online to international customers, a D2C e-commerce model that fails to offer multi-currency pricing, catering to the buyer’s preferences, may result in lower checkout conversion for international sales. In the absence of localised pricing, international online shoppers may abondon the purchase or leave their shopping carts to check on currency conversion rates and this removes the shoppers from the site’s sales funnel, increasing the risk of cart abandonment. A PayPal survey indicated that 76% of online shoppers prefer to have the option of paying in their local currency and over 60% of survey respondents check currency conversion rates before paying in foreign currencies. 7 It should be noted that the impact of not having multi-currency pricing on an e-commerce platform depends on the target buyer segments and the significance of cross-border sales to the platform. Settlement model for cross-border sales Where a company deploys a D2C model for cross-border e-commerce sales, considerations around FX risks and control of the FX workflow include: • Settlement currencies — Where an e-commerce business elects to receive sales proceeds from its PSP in a small number of settlement currencies, usually to match the functional currencies of their business, FX-related choices are effectively being handled by the PSP. Treasury should engage closely with e-commerce teams to assess potential FX inefficiencies arising from PSP settlement workflows, which could prove to be a source of margin erosion. Treasury should engage closely with e-commerce teams to identify FX optimisation opportunities in the collections flow for cross border e-commerce sales. • Timeliness of settlement — For a company with cross- border e-commerce sales in multiple currencies, the settlement periods from point-of-sale to actual receipt of funds may differ vastly beween its PSPs. This presents an opportunity to improve working capital by optimising settlement structures with its PSP partners. 5. Cash management framework Moving from B2B distribution models to D2C e-commerce results in the miniaturisation of a company’s collection flows into a high volume of lower value sales transactions to consumers. This changing profile of sales and collection flows impacts downstream operational structures within treasury and Shared Service Centres (SSC) areas such as: • Handling new collection processes at scale – for companies that are pivoting to online subscription models as part of their D2C e-commerce strategy, electronic Direct Debit collections may provide a consumer friendly, low cost alternative payment method in markets with electronic mandate management models. This shift to a high volume of payer initiated Direct Debit transactions may require re-engineering of SSC processes to accommodate these consumer flows. • Reconciliation and cash application — D2C introduces new complexities in the collections reconciliation process, especially where a company works with multiple PSPs and therefore receives settlement data from its PSPs in multiple formats with different datasets. Such fragmented reporting structures create challenges in downstream reconciliation processes. • Consumer refunds handling — optimising the process for consumer refunds (for card and non-card payment types) is important as this directly impacts the buyer’s experience with the e-commerce platform. Omni-channel considerations may also come into play, where companies need to support seamless customer interaction between online and offline channels, including online purchase with in-store return and refunds. Treasury should work with the business to set up cash management structures that ensure e-commerce flows can be efficiently managed within downstream operational models. This is important, as downstream processes may ultimately affect consumers’ experiences if not managed efficiently.