Treasury Today Country Profiles in association with Citi

in association with

Barclays logo

BARX FXPay: managing high volumes of small value FX trades efficiently

BARX FXPay is an automated foreign exchange (FX) system that enables you to price goods and services in the local currency of your customers. It generates an incremental revenue stream for your business by including an additional profit margin for you, whilst automating your currency hedging using transparent FX rates agreed upfront.

One particular market that BARX FXPay technology is ideally suited for is online retailing. With the internet now established as a key shopping battleground, online retailers and service providers are being presented with a number of challenges and opportunities. E-commerce is enabling businesses to grow rapidly without the constraints of a traditional high street business model and it enables consumers to shop from the comfort of their home, at whatever time of day they choose. To continue to be successful, retailers are seeking innovative and additional services online to enhance the customer experience. One area is by offering a choice of currency for their customers to pay for goods purchased online.

“To continue to be successful, retailers are seeking innovative and additional services online to enhance the customer experience. One area is by offering a choice of currency for their customers to pay for goods purchased online.”

Chart 1: Forecast: EU-17 online retail sales, 2009 to 2014
Chart 01: Forecast: EU-17 online retail sales, 2009 to 2014

Source: Forrester Research Online Retail Forecast, 1/10 (Western Europe).
*Data presented in 2009 constant euros.

Traditionally, providing a choice of currencies to clients has proven to be problematic for retailers. Some of the problems faced are:

  • Having numerous currency collection accounts.

  • Deciding on the FX rate to price the goods.

  • Trying to buy the currency at that FX rate or better to ensure there are no FX losses.

  • Coping with aggregating the FX hedging for high volumes of small value transactions in different currencies.

  • Managing FX risk is often time consuming and resource intensive.

  • The traditional Dynamic Currency Conversion (DCC) model doesn’t allow retailers to price their goods in foreign currency and also doesn’t give them the same level of control over their FX margins.

In response to many of these challenges, Barclays has developed its BARX FXPay proposition, an automated FX solution that can help clients overcome these problems when they expand internationally, without incurring additional operational expense and risk.

Increasing profits and reducing risk

BARX FXPay can:

  • Automatically send FX rates to your e-commerce site. If required these rates can be based on a pre-agreed source to provide transparency.

  • Hold FX rates for an agreed period of time (eg one hour or one day), to limit the impact of constantly changing market rates.

  • Include an additional margin on behalf of your business, or you can add the FX margin.

  • Receive files of your sales transactions, automatically netting and aggregating currency positions as well as executing and settling FX trades.

  • Provide confirmation files and reporting details.

  • Re-convert monies for refunds at the original FX rate from the time of sale.

  • Work without a minimum transaction size.

  • Be customised to your specific business requirements.

“Leveraging Barclays’ leading edge BARX engine to price FX rates, BARX FXPay is perfectly suited for businesses receiving or making high volume, small value payments from a variety of countries and customers including online retailers, travel companies and payment service providers,” says Colin Digby, Director – Foreign Exchange, Barclays Capital.

“The product enables clients to receive competitive FX rates automatically, which they can use to price goods and services in multiple currencies. These FX rates can be fixed for a pre-defined period; typically a given intra day time frame or in some cases multiple business days. The agreed rates can be based on market, benchmarked or published rates and a conversion only takes place when a sale is made. Through BARX FXPay, the client also automates the subsequent settlement of risk throughout the day, without having to intervene manually.”

“Leveraging Barclays’ leading edge BARX engine to price FX rates, BARX FXPay is perfectly suited for businesses receiving or making high volume, small value payments from a variety of countries and customers including online retailers, travel companies and payment service providers.”

By using BARX FXPay rather than leaving FX conversions for small value transactions to banks or credit card companies, clients can directly manage their FX pricing and may be able to retain additional FX margin. Today, often the bank or credit card company receives this margin and the retailer does not really benefit. “Online retailers can take control of how they price their products and services through any additional agreed FX margin added to their FX rates. Providing an additional and valuable source of extra income, which directly improves their bottom line,” notes Digby.

Supporting international expansion

In addition to these risk management and revenue benefits, BARX FXPay can play a broader role in helping businesses to grow. While the UK boasts an increasingly sophisticated online retail and services market, for example, other countries are still building momentum. This means that there are significant opportunities to gain market share by looking to expand internationally. According to Digby, BARX FXPay can help corporates to expand their international business in different ways:

“Take a UK domestic online client. They may be selling their product in sterling and quite often they won’t have seriously considered the possibility of selling in euros, or US dollars, because they would have to physically deliver the product to that market and equally they would also have to work out an efficient foreign currency collection mechanism. But this is not always a major problem. A number of clients are having success introducing extra currencies for domestic purchases. For example, there may be euro or dollar cardholders living or staying in the UK who want to pay in those currencies, as they have those currencies for whatever reason.”

“In addition to these risk management and revenue benefits, BARX FXPay can play a broader role in helping businesses to grow.”

Secondly, and on a more truly international scale, Digby is seeing a number of UK clients who have been successful domestically are now looking to expand into mainland Europe and the Nordic area, for example. “So clients need to make sure that they can manage the associated financial flows. If you look at the card services that Barclays offers; the FX business, including BARX FXPay; the corporate banking, payment and trade services and so on, Barclays can help with the whole financial supply chain and ease the client’s international expansion concerns in a holistic way. Alternatively we can simply plug in BARX FXPay where clients are already using a different partner for their card acquiring or corporate banking.”

Interview

BARX FXPay

Portrait of Colin Digby

Colin Digby

Director – Foreign Exchange

In this interview we examine the rationale behind BARX FXPay and how it can help corporates to manage risk and improve efficiency in their day-to-day treasury management.

How was BARX FXPay developed?

As a bank, we have a number of business partners internally who require the automated provision of FX rates. Some of them also needed the ability to hold rates open for periods of time, whether that be 24 or 48 hours, or perhaps just 30 minutes. We then needed to provide the ability for them to be able to aggregate their position and offload their risk through an automated process.

It was only a short step and seemed a natural progression to make this available to our corporate clients, some of whom had very similar requirements. As a result BARX FXPay is well suited to those businesses that require FX rates for varying timeframes and have a high volume of small value transactions, who wish to be able to price their products and services in different currencies.

Aside from international expansion possibilities, can you highlight some of the key value-adds that BARX FXPay offers to clients?

One of the key areas would be the cost and risk management benefits for clients that are provided through automation of the process. Offering a known rate up front means clients do not have to take on FX exposure. Alternatively, the service can be set up to trade FX positions that arise throughout the day at the prevailing rates, which wouldn’t normally be possible without a lot of manual work and as a result the client can achieve near to the average rate of the day. Since the system takes care of all of this, administration costs are reduced and treasury management processes are simplified.

Another key value-add is that clients using the product can capture FX margins that were previously trapped in the payment chain, or perhaps the credit card process. This enables clients to take control of the FX margins and optimise the revenue potential.

“The ability to auto-manage the reversals and refunds process through BARX FXPay can also be a significant benefit.”

What makes BARX FXPay unique?

The ability to auto-manage the reversals and refunds process through BARX FXPay can also be a significant benefit. Reapplying the original FX rate for the client on their refund ensures that the customer experience remains positive, which is of utmost importance.

In essence, BARX FXPay is focused on improving our clients’ experience and their customers’ experience in terms of being able to price their goods and services in multiple currencies, being able to collect revenues efficiently and profitably, whilst maintaining a close eye on the risk associated with those flows.

Why is Barclays best placed to offer this service?

BARX is Barclays’ award-winning multi-asset class online trading platform and currently holds the award, ‘Best Overall Platform’ from Profit & Loss Digital FX Awards, for the second year running. Barclays was second globally in Overall Market Share in Euromoney’s 2011 FX Poll. These credentials highlight our expertise in foreign exchange and technology. BARX FXPay is another string to our bow in an area where we are already very well-known and regarded in the market.

For corporates, Barclays can offer a full range of award winning solutions from the largest M&A related specialist FX hedging, all the way through emerging markets, FX options and online trading through to BARX FXPay which is focused on the smallest value transactions. We have tailored FX solutions for the largest companies and deals through to the smallest.

Moreover, at Barclays our approach is to understand our clients’ needs with the help of our specialist relationship directors and offer appropriate solutions. Because we have expertise in sectors such as online retailing, we are able to give clients perspectives on how others manage risk and cope with problems. We can then use this knowledge to tailor our solutions to meet client needs.

BARX FXPay Technology
BARX FXPay Technology Automated FX Settlement Solution

The technical set-up

Operating via a host-to-host connection, BARX FXPay clients can feed in a simple CSV text file or an XML file, to suit their business set-up and requirements. “The implementation process is typically smooth and straightforward, as clients with online businesses are often well versed and highly geared towards working with technology and often have in-house IT teams,” says Digby.

“So, from a systems point of view it can be quite a quick and painless implementation process. We worked with a client recently that took less than a fortnight to be up and running. That included reviewing and agreeing the format, understanding the communication protocol and carrying out the testing before going live.”

More than meets the eye

For Digby, one of the most important additional features of BARX FXPay is the reporting functionality. “As a client’s flows come through in various currencies and as we execute the relevant trades throughout the day, we send confirmation files back to the client. This means that every single line item can be reported, together with the exchange rate that was used when the deal was executed.”

“That is quite a powerful tool as that can be fed straight back into the corporate’s ERP systems or accounting systems for reconciliation purposes.” As such, reconciliation is not delayed for days or weeks – shortly after the transaction has been made, the item can be automatically reconciled.

And as Digby concludes, “With BARX FXPay intelligently transacting foreign exchange on your behalf, you can focus on what’s really important – running and expanding your business.”

Barclays

Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate banking, investment banking and wealth management with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs 147,500 people.

With a clear focus on quality relationships, Barclays provides integrated banking solutions to businesses, large local companies, financial institutions and multinationals. We facilitate the success and growth of our clients by providing lending, risk management, cash and liquidity management, trade finance and asset and sales financing.

Disclaimer

Barclays is a trading name of Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England. Registered number 1026167. Authorised and regulated by the Financial Services Authority. Registered number 122702. Registered Office: 1 Churchill Place, London, E14 5HP.

BARX and The Trader’s Best Friend are registered trademarks of Barclays Bank PLC and/or its affiliates. Neither Barclays Bank PLC nor any affiliate nor any officer or director of any of them accepts any liability or loss arising from any use of this publication or its contents. This publication is for discussion purposes only and shall not constitute any offer to sell or any solicitation to buy any currency or other property nor is it intended to give rise to any legal relationship between Barclays Bank PLC or any of its affiliates and you or any other person, nor is it a recommendation to enter into any transaction. This document does not disclose all the risks and other significant issues related to use of the functionality and enhancements described herein. Prior to using such functionality, you should ensure that you fully understand all applicable risks, including without limitation, the risks inherent in trading and in particular using trading algorithms and defaults. The BARX platform and all the enhancements described herein might not be available to all categories of person due to local regulatory requirements and if made available are provided pursuant to a separate agreement between you and Barclays. Some products and execution techniques might not be available globally. Prior to entering in to any transaction of the type discussed herein, investors shall seek their own legal, tax and accounting advice to determine the advisability of entering into transactions and their eligibility for BARX.