The Rise Of Risk Management In Commerce And Payments

Consider it one of the main lessons to come out of the second quarter earnings season: Hedging — as in preparing for currency fluctuations and other factors — is something that eCommerce firms need to embrace, too.

When Netflix reported its Q2 financials, its failure to “hedge its revenue with derivatives,” according to Reuters, led the company to lower its 2018 operating margin expectations to the lower end of its 10 percent to 11 percent projection. “We’ve got some adjustments to make because of foreign exchange rates, and we know we’ll make those adjustments and we’ll grow into that,” said Netflix Chief Content Officer Ted Sarandos during the company’s post-earnings conference call.

The culprit? A stronger U.S. dollar.

Remittance providers already know about hedging, and continue to expand their efforts in that area. Western Union, for instance, recently launched a product in Hong Kong, FX Options, that will service small businesses that engage in cross-border trade. Cross-border operations can expose companies to an array of risks, including foreign exchange risk. According to Western Union, its newest tool for Hong Kong SMEs provides capabilities for favorable currency movements, reports said, while hedging against risk in the case of unfavorable FX fluctuations.

And while agriculture has long expertise dealing with the threats of currency swings and other risks, not all food producers are totally up to speed — a new digital payments and risk management push targets the international seafood industry, for example.

But recent events, including the ongoing troubles with Turkey’s currency, are giving hedging and risk management a moment in the spotlight — and that includes their application to the worlds of commerce and payments, as shown by a new PYMNTS interview with Cambridge Global Payments COO Mark Frey.

When it comes to volatility, he recently told Karen Webster, “some CEOs just throw their hands up in the air and say there is nothing we can do about it,” Frey said. “But there is.”





New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.