Foreign exchange is an unavoidable element of an international ecommerce business and one that all retailers will have to manage when selling into global markets. From managing multiple currencies to minimizing costs, foreign exchange and its maintenance is a big job for any retailer, no matter what size – and the complications will only grow with the business.
To give an oversight into the complexity of foreign exchange and tips on how to manage it, here are some of the main considerations of which retailers moving into international markets should be aware.
5 Tips for Foreign Exchange for DTC Ecommerce Brands:
- Multiple currency management
- In-country pricing vs currency-converted prices
- Managing finance systems
- Managing foreign exchange rates
- Returns and refunds
Multiple currency management
One major concern for retailers when moving into international markets is managing and reconciling additional currencies. The potential implications of managing multiple currencies are significant, and although it is possible for a retailer to move into new markets while only offering a single major currency such as US dollars, it is widely accepted that websites convert better when they offer local currency.
When it comes to removing friction from the purchase journey, currency is an important consideration, and it can be impacted by the array of payment methods you offer in the checkout as not all currencies are supported by all payment methods. For example, Paypal, which would commonly be understood to be a ubiquitous payment method globally currently only supports 24 currencies – a far cry from the 100+ currencies offered by ESW.
Credit and debit cards typically over the greatest coverage of currencies, but can also represent pitfalls for brands, particularly when it comes to acceptance rates. It’s important to work, where possible, with local acquirers that will honour payments made with local card schemes – something a global acquirer may not do. In Turkey, ESW increased acceptance rates from 53% to 91% by working with a local acquirer – a huge increase in business that was being unnecessarily turned away.
Offering the right currency/payment method/acquiring blend will bring more shoppers successfully through the gate, and lead to repeat business from those that would otherwise not be able to convert, and therefore unlikely to return.
In-country pricing vs currency-converted prices
There are two ways to manage pricing for international markets – in-country pricing or currency-converted prices. Deciding which to offer is a key consideration and can have implications for conversion or website performance.
Currency-converted prices are suitable for markets where there’s not enough volume to justify the cost of maintaining a local price book. To build the price shown to the customer, an FX rate is applied to the domestic base price, and any applicable fees or import charges are added on top. However, this approach doesn’t convert optimally, and is an inferior experience for the shopper due to price fluctuations caused by dynamic FX rate changes.
In-country pricing is suitable for setting local prices for a product in a specific market. The retailer can choose what the final price (including all fees and charges) to the shopper should be, and then the product price is reverse engineered out of the final price. It usually converts better because it doesn’t fluctuate from day to day, it’s a format that is familiar to shoppers and if the store has a physical presence in the country also it can also align the online and offline pricing experience (should the retailer want to have a consistent price across channels).
Clodagh Vance, Head of Commercial and Strategic Finance at ESW, said, “The idea is always to have a simulated in-country price for the shopper, so the shopper can think, ‘That website prices just like a local shop, and holds no surprises. The price is displayed just as I would normally see it.”
Managing finance systems
It’s important to understand the capabilities of the finance system or ERP being used and what currencies can be remitted. If the domestic currency is US dollars but the shopper is paying in Euro, can the system accept Euro remittance or only dollar remittance? If accepting remittances in multiple currencies how are these currencies reconciled back to base currencies and can the retailer consume the exchange rates used to generate the price that shopper paid?
Managing foreign exchange rates
Managing multiple currencies will involve storing exchange rates for each country in the system. This requires keeping data sets for every single currency the business now offers including the shopper currency and a base currency for every single transaction.
A key consideration regarding managing foreign exchange rates are is the possibility that customers could be paying in any amount of currencies (eg 50) but the payment provider may only settle in eight or 12, for example. The logistics around managing shopper currency and payment provider currency are extensive with price books needing to be kept for every single currency.
Returns and refunds
Returns create their own challenges when dealing with multiple currencies, particularly if using the currency-converted price model. This is because when a shopper wishes to return an item, the retailer will need to return the exact amount the shopper paid, even if the exchange rate has changed and the return price is greater than the original payment.
When selling into international markets, the implications of foreign exchange rates and managing different currencies cannot be understated. Providing the shopper with a frictionless experience is of key importance, and nowhere is more important to make the shopper feel confident in the website than with financial transactions. However, what looks seamless on the front-end can require complex infrastructures and treatments in the back end, all in the name of supporting a great customer experience.
ESW manages all aspects of foreign exchange for the cross-border retailer including reporting and foreign exchange costs. To find out more about how our solution can help your business move into international markets with ease, contact our Sales team.