The currency conundrum

December 12, 2016

2016 has seen a number of significant international events. Arguably two of the biggest were the UK’s decision to leave the EU, and the USA’s decision to elect Donald Trump as President of the United States. The long-term implications on the travel industry remains to be seen. But one of the immediate effects was on currency rates. Following BREXIT the pound dropped to a 31 year low. The day after election night, the US dollar plunged. International travel agencies whose transactions settled on those days, could have seen their profit margins evaporate overnight. With further uncertainty ahead and increasing consumer demand for ever more far-flung destination, managing international transactions and protecting from currency fluctuations should be a key priority for travel companies in 2017.

Demand for exotic and unusual holiday destinations has meant today’s travel companies are operating more globally than ever before. The latest Phocuswright research showed that the number of travel companies accepting payments in more than ten different currencies has doubled from 6% to 12% in the past three years. And 6% are now doing business in over 50 different currencies. Although this presents huge opportunities when it comes to global expansion, it comes at a price. Foreign exchange and cross-border fees as well as more admin increases the cost of payments. And when you’re dealing with 50 currencies, the risks of currency fluctuations eating into your margins are high.

So how can travel companies reduce costs and risks? The first step is to re-examine your cross-border payment strategy. Modern trends require modern solutions. Too many travel companies stick with traditional methods for international transactions. But what they don’t know is that a lot of the costs of international transactions are ‘hidden’ fees and charges. In fact our analysis shows travel companies relying solely on banks could be spending 3% more on international transactions compared to alternative methods. Secondly, look for FX options that give you control over rates to reduce costs. Solutions offering local funding and settlement significantly reduce the cost of payments, and eliminate the need to set-up expensive banking arrangements in each jurisdiction. And real-time conversion allows agents to lock-in rates at the time of booking – protecting from currency fluctuations.

Implementing an effective cross-border payment strategy is a must if travel companies are to effectively meet the destination demands of today’s consumers, while remaining profitable.

Anthony Hynes, CEO and MD, eNett International