FX Risk Management for E-commerce: Is It Essential? - with Svetoslav Georgiev from Ebury

This talk addresses the topic of foreign exchange (FX) risk in e-commerce businesses, particularly as they expand into international markets with diverse currencies. The speaker explains how FX risk arises, examining its implications for companies that engage in cross-border transactions. He discusses the advantages of handling multiple currencies, such as broader market reach and price optimization for customers, while also highlighting the challenges like transaction costs and currency fluctuations. The session explores various strategies for managing FX risk, including natural hedging, budget rates, and dynamic hedging options. Additionally, Eber is presented as a solution to streamline currency management for businesses, emphasizing the importance of adapting financial practices to mitigate risks associated with currency volatility.

Hi to everybody. The presentation is going to be in English uh in English because of the international presence here. Uh what we would like to do today, let me see where I can stand so that everybody everything is seen. Okay. So what we would like to do today is not to make some uh it's not going to be a lot of brand positioning. is going to be

a topic that we think it's uh becoming important for e-commerce. So uh let's let me present what we are going to do. We are going to speak about the FX risk in the e-commerce business and how it arises, how it can be handled. Uh it's going to be four topics that I'm going to discuss the different currencies in the e-commerce. What is FX risk? How it can

be managed and how it is managed. And later at the end I'll present Eber as a solution for this. So so okay stable. So uh when e-commerce grow and when they start selling internationally they deal with a lot of currencies even uh in in uh CE region there are more than six that you can count and uh companies are getting exposed to the to the FX to

the different currencies and they need to handle with them. There is advantages of you of working with a lot of currency. There is also disadvantages. The main advantages are ability to reach more markets and more customers. So that if when you are open to work not not only with lever or in euro but with other currencies, you open yourself to other markets to see their culture to

sell in their currency. Ability to optimize prices for end users. This is competitiveness of the company because when you sell only with one currency sometimes uh in different currencies this is in different financial providers there is a lot of cost to the end customer we don't see it we price in euro or in leva but actually prices are much higher for the end customers in different currency

uh in different countries because of the different currency and financial providers who are actually taking advantage of this and charging a lot a lot more than what our competitive rates are uh of course ability to negotiate prices with uh suppliers. This is uh regarding the the supplying part of the business not only selling but uh uh assuring the goods. When you actually speak to suppliers in China,

you may ask not only for dollars or euro you can ask for Chinese yan as well, Poland, Polish, zlotty, uh different currencies uh in different countries. Disadvantages. These are the main disadvantages that uh appear when you work with uh different countries. There is a multiple currency management. It's uh very time consuming process. Sometimes uh ordinary accounting uh accountant cannot do it, doesn't want to do it. So

it's uh they need uh to to facilitate the to to to make easier the process for we need to make easier the process for them so that they can handle the workflow. high transaction costs. Of course, when you sell not in euro but in other currencies, your transaction costs uh are going to increase. Uh, of course, there is solutions for this. It may not be only on

local banks. With local banks, we are experiencing higher transactional cost, but with fit tech solutions, it's actually the same or even lower. And currency risk, this is what the topic of this uh of this seminar is going to be. It's uh with every new foreign currency which is not pegged for us for euro it's actually a risk because the fluctuations are very high. We are going to

see on the next slide. So what is FX risk? FX risk is the volatility of the currency rate the fluctuations when you buy and sell. When you sell in foreign markets, you budget some sales but actually they can be uh like uh with the recent movements when Trump came to power there is sometimes dev deviations of 10% on more for major currency for major currencies then for

even smaller it can be even higher. So it's very important for us to see uh the deviations. Uh for small period of time it can be 3 4%, this is actually bearable by company but for longer term it can be even 6 12 or maybe higher depending on the currency you choose. Uh of course there is not lack of clear direction so that you can forecast this.

It's not always de it's not always depreciation of the currencies. It's not always appreciation of the currency. It's always move up down up down. Some year can be half a year appreciation, the other half a little bit depreciation. It's always uh up and down moves which nobody can forecast. This is why it management is important. It gives you the ability to control these rates. So how company

manage FX risk? Uh there are three major ways that can be approached. One is avoid, the other one is accept. And we have uh the accept and manage currency risk. Avoiding currency risk is dealing with one currency. It's uh it's pretty simple. You sell in euro, you buy in euro or you use only dollars. You sell you purchase the goods in dollars and put the prices in

dollars for your customers. Doesn't matter that you are in Bulgaria. Uh you don't sell in Bulgarian level. You sell in in dollars to your customers. This is like transferring all the FX cost to your customers. This is one way of doing it. But it may be not optimal for pricing and it your clients can have at the end higher or lower costs and they might not be

that interested in uh in dealing with you when you don't offer anything uh in the domestic currency accepting FX risk. This is uh mainly what uh actually increasing in turnover e-commerce businesses do. They convert the currencies. they uh they keep it for themselves or uh they transfer it to clients but they are still not uh very familiar with the management of FX risk because of their high

profit margins now but maybe e-commerce is going to uh grow grow grow and as the business grow then the volumes are becoming higher and higher and the profit margins are uh becoming lower so now 10% deviation in the currency it might be harmful for the business so we have to protect ourselves from uh from currency movements and the other one ma accepting and managing currency risk is

our is actually to to admit to admit to your uh to the company that there is a FX risk and they need to manage it. So here are few strategies that are known for managing currency risk. There is a lot of products that uh the presentation was going to be too too too long. So I I left it for for us uh to to discuss if you

are interested in a later stage. But main products available for the B for the Bulgarian markets and offered here locally are fixed forwards, flexible forwards, dynamic forwards. Uh these products are basically possibility to fix uh exchange rates uh at different levels. First is fix forward at a a specific date in the future which is not very flexible. The other one comes with its name flexible. You can

fix it for a certain period of time and then use it during the period for uh the moment you need it partially or the whole amount. And the other one dynamic forward is actually where you can participate in any favorable movements up to certain levels. So they're also quite interesting. So first and let's say used uh more basic strategies natural hedging. This is what we discussed having

a single currency uh to to sell and buy or to sell and buy only with one currency. Maybe you deal with five currencies but you always match your delivery and sales in the same currency. Budget rate for the period. This is very interesting and it's widely uh widely used. This is when you fix your rate for let's say three six months and you know what your sales

or your purchases are going to be in your local currency. So you're not exposed to any FX risk. You have the final rate you you can budget normally. Invoice hedging. This is more for mature companies where they have a lot of invoices for supplies that they pay and uh this is uh this is used by them. Uh invoice hedging very clean. You have an invoice, you hedge

it, you have it uh uh you know the fixed rate when it comes due, you pay it due to the fixed rate. There is no risk for you. No matter where the dollar or whatever currency is you're hedged, you don't have risk. You know what in your local currency the the cost is going to be for this invoice. Rolling hedging it's uh uh the same as budget

uh hedging for a budget period but thinking uh thinking for a longer period thinking for not only 3 6 months but actually rolling the strategy to 12 to 24 months and doing it on periods. dynamic hedging. It's uh it's this is a uh this is becoming a more and more complex uh complex strategy where you actually follow the markets, see the exchange rate, accumulate invoices or accumulate

uh um let's say payables by your client and then you act when you see an improvement in the FX rates and you actually fix them. So you're waiting for more favorable market conditions not what they are at the moment and you act accordingly when they happen because you saw at the beginning there is always side movements in the rate. So you're waiting for your time for your

budget rate and then you act layered hedging. It's our let's say most uh commercialized pro uh product that we offer to our client because it's a strategy that actually uh maybe a little bit more complex at the beginning but then freeze time of the all the people that use it financial manager accountants. We are glad to speak more about it and it's actually proven with uh historic

uh historic back testing that actually it decreases the the fluctuation of the currencies with uh with half let's say uh on the next slide this is this is what was the topic for fin for FX risk management and currency risk management this topic actually is very important and uh I didn't want to be that fast. But we are uh let's say there is a time schedule. We

would be glad to have to have your contacts and actually discuss this on a separate meetings where we can uh pay more attention to your needs and see if it fits actually uh your uh your your needs when we know it actually every strategy can fit to your needs. So now the clicker it's oh so now we are going to do a little bit branding because actually

what we spoke currently can be offered by a single partner and ei would like to position itself as one-stop shop for e-commerce. We offer a variety of different products. We maybe we we make say that we are one of the biggest fintex in the world and we offer possibility to go uh to a lot of markets. Please bear with me if it's possible to to see one

video which is going to help in the presentation so that I don't speak uh so that not only I speak but we see it. Can we start it? No. Is it going to run? It's in the another screen probably. Huh? Okay. [Music] So now I can move to the other side. Uh to the other. Okay. Okay. So just to recap, we are a fintech provider. We offer

collection in 35 currencies, more than 10 on local. We are uh offering payments in 130 currencies. Uh for Bulgaria, we offered which is I'm very proud of this. We offered Bulgarian companies to be uh active in 30 and more currencies last year. So it's a quite an advancement because usually in the banks we were dealing with uh uh three to five currencies but now I is offering

to Bulgarian companies Bulgarian companies to deal more than 30 currencies that we achieved to give I is actually this is the slides want to to show you that I is not a new company it's created in 2009 it's uh growing exponentially since 2019 we have a bank of Santandere which is the in top three banks in the European Union in Europe. Uh it's actually majority owner. We

are uh active in uh I think we are active in more than 30 countries. 40 43 offices globally. We are going to see it and employees are actually uh above uh 1,800. Here is actually our global presence. uh a lot of offices are located in Europe but we are also present in North America, South America, Asia, Australia, New Zealand, you can see everywhere in China we have

Hong Kong also offices, Dubai, Singapore, we are uh we are globally presence. This is what helps uh us to to grow and to deliver very good financial services to to wide range of businesses. And this is uh the last slide. It's uh it's for regulations. We are fully licensed company. We operate in in many markets. In Bulgaria, we are uh licensed by the National Bank of Belgium

but regulated from the Bulgarian bank. Also, all branches in Europe are the same and regulated by their national banks. Uh so yes, you can see every every information I think this is the last slide. I don't want to waste your time more. Please if you want uh to discuss anything more find us at our booth. We are happy to to discuss more the information here and to

discuss every services. Thank you.