CitiFX Publication - From Crisis Management to Business Recovery

Key Takeaway: With all of this being said, today’s business outlook, let alone foreign exchange markets, continues to be both uncertain and volatile. As such the Policy Assessment Matrix discussed certainly serves as an important risk management framework required in these challenging times. However, it is important to keep in mind that where a company may be placed today, for example in the top right of our matrix, can change quickly and nowhere has the cause been more apparent than in the depletion of cash reserves. The core message is: Be prepared. The world is shifting and it would be prudent to act now. Long-Term Response: Business Recovery COVID-19 has had an undeniable commercial impact on multiple industries but the road to business recovery can begin now. In the last month, we have seen an uptick in strategic interest around projects that would help repair business financials. Businesses recognise that laying these foundations now could help turn the tide when commercial traffic returns and deploying spare workforce capacity towards these projects optimises existing resources. Projects have generally revolved around the search for new revenue opportunities and the optimisation of costs, with the added criteria that these projects must be achievable within shorter timeframes. FX capabilities can fulfil both objectives and the following guideposts illustrate these. Guidepost 4: Optimise e-Commerce Sales Conversion Funnels with FX COVID-19 has underscored the strategic relevance of e-commerce channels to Corporates and those with Direct-to-Consumer (D2C) businesses are likely to further optimise their sales conversion funnels when they move into a business-recovery phase. E-Commerce managers are no strangers to the discipline of optimising their sales conversion funnels. Tools such as the strategic placement of checkout buttons, reducing browsing friction and mobile optimization are all part of any e-Commerce manager’s arsenal but in recent years we have seen an increased focus on localised pricing as a key enabler of online sales. When selling internationally, the ability to display prices in local currencies contextualises sales inventory in your customers’ terms and have been found to improve sales conversions. We see 4 localised pricing models in today’s e-Commerce landscape, with both pros and cons (Figure 3). 6 5 Foreign Exchange Guideposts for Corporates in a time of COVID-19 Pros Cons Description Model 2 Actualised local prices with wide FX margin Model 3 Actualised local prices FX risk managed through internal Treasury Model 4 Actualised local prices FX risk managed through full risk-transfer solutions Model 1 Indicative local prices Easy to implement Poor customer experience arising from differences between actual amounts charged and prices displayed Good customer experience Simple implementation, FX margin added on all foreign currency sales Could deter price sensitive customers Introduces revenue accounting noise Good customer experience Incremental cost and headcount to support new risk management workflows Achieves localised pricing without having to assume risks of FX price movements Capabilities are provider-dependent Figure 3: Common Localised Pricing FX Risk Management Models The use of indicative prices in Model 1 achieves localised pricing but could create customer experience issues further down the value chain when customers realise that they have been charged a different FX rate by their card issuer. Oftentimes, these complaints are brought to the merchant and not the card issuer and this impacts customer servicing call loads, customer satisfaction scores and an increase in returns and cancellations; an example of one department’s good intentions manifesting as unnecessary problems for another. In an attempt to solve for the negative experiences brought about by indicative pricing models, some e-Commerce channel managers have turned to assuming FX risks