Online shopping boom: Could your eCommerce business be missing out?
Ecommerce has been this year’s big success story for Australian businesses, with many seeing their sales bounce back thanks to record-high numbers of people shopping online.
Yet, as promising as the domestic eCommerce market looks right now, new data suggests your business could make even greater gains by going international.
International money transfer (IMT) specialist OFX reported that revenue for its online clients selling overseas jumped a massive 41% last month, compared to a year ago.
Their total volume of goods sold was also significantly higher this November than the last - up 51% from a year ago.
OFX’s strategic partnerships director for eCommerce, Edward Wiley says these businesses have mainly benefitted from a COVID-induced growth in online sales, not just here in Australia but in other larger countries like the US too.
For comparison, Australia’s eCommerce market is forecasted to hit US$27.2 billion by the year’s end, whereas the US’s is projected to reach a much higher US$431.6 billion, according to analytics company Statisca.
“Australian businesses are doing really well but some of them might be missing out on this once-in-a-lifetime opportunity to expand internationally and catch that kind of [global] market share while everyone is moving to buying online,” Wiley says.
How expanding overseas could save you money
This opportunity to capture overseas market share isn’t the only upside to expanding abroad.
“For seasonal businesses, they have the benefit of reselling their winter stock, which they might have held on since July or August, in the busy times of the year like right now,” Wiley says.
He adds that expanding to the US could also help Aussie businesses avoid hefty foreign exchange (FX) fees.
That’s because of something known as a ‘natural hedge’. This is where both your expenses and income are in the same currency, so you’re protected from exchange rate exposure and won’t lose money to FX fees when converting your Aussie dollar revenue to US dollars to pay overseas suppliers.
While currency conversion wouldn’t be too bad right now because of strong AUD/USD exchange rates, markets remain very volatile. And that volatility could affect your bottom line, as the amount of AUD you’d have to send for the same amount of USD varies drastically, depending on when you make the transfer.
For instance, for every Aussie dollar, there would be almost a 20 US cent difference between transfers back in March (when the AUD plunged to 55 US cents) and transfers today (when the AUD has hit a two-year high of 74 US cents).
“For businesses who have expanded into the US market and are now earning US dollar revenue, they don’t have to worry about what the Australian dollar is going to do over the next six to 12 months, because they can directly use their USD earnings to pay suppliers in China, Thailand or wherever they are in the world,” Wiley says.
How to create a ‘natural hedge’
For a ‘natural hedge’ to form though, businesses wouldn’t be able to simply stick with their bank’s multi-currency account.
Wiley explains that the problem with an Australian bank’s US dollar account is that it’s issued in Australia rather than the US. This prevents businesses from connecting to payment gateways such as PayPal and Afterpay or online marketplaces like Amazon and Walmart, all of which require a US dollar bank account held in the US. Without a US-based account, those platforms would automatically convert your USD revenue back into AUD using their own exchange rates.
As a result, if you use your Australian bank account you could actually experience a double whammy in conversion fees.
“Currency conversion for Paypal is 3%, so for every single US dollar you earn, you’ll lose 3%. And then you’ll have to convert the Aussies back into US dollars, which banks can charge up to 4% for,” Wiley says.
Luckily, IMT specialists like OFX offer similar multi-currency accounts, but with one important point of difference: they’re held in the countries in which you are operating (say, the US) rather than just in Australia. This means your business can link its account to PayPal, Afterpay or Amazon and still be able to keep all its USD revenue as USDs.
Another FX tool to keep up your sleeve
But what if you’re looking to expand to other countries besides the US, like the UK or Europe? While you’ll have a natural hedge for local costs like freight and sales tax, for US dollar expenses, that’s when foreign exchange features like forward contracts come into use.
With forward contracts, you can secure the current exchange rate for a future transfer, up to 1-2 years in advance. That way you won’t miss out on favourable rates, even if you don’t need to make a transfer right now.
For a snapshot of IMT specialists who offer these FX solutions, head on over to our business international money transfers hub. Or check out other expert tips on how to kickstart your move to global eCommerce.