If you are wondering how to save money on international banking for your tourism or travel business, then keep reading as we are going to discuss the best ways to do it.
Many tourism and travel companies have international payments or client exposure, which causes natural currency fluctuation risk that may affect their margins negatively. Any such business owner or finance manager should think of ways to minimise such risks and optimise international banking costs overall.
Our Epico Finance professionals have helped many such companies optimise their international banking strategies, and we are going to share key tips with you in this article.
Having More Than One Bank Account
First and foremost, it is worth considering having more than one bank account. Usually, a local bank account is used for domestic operations in a local currency, such as paying taxes, rent, utilities, payroll, and more.
However, the tourism and travel industries are cross-border intensive and require transacting internationally in at least several currencies. The most popular currencies are EUR, USD, GBP, AUD, NZD, CAD, and more exotic ones like TRY, ILS, AED, CZK, THB, SGD, and so on.
Having such a vast currency exposure requires a platform and the capacity to manage all those payments in one or several places. Traditional domestic banks are not flexible in regards to currency exchange, receiving and sending payments in multiple currencies, or even allowing to fix currency rates with forward contracts. Therefore, additional multi-currency accounts are needed to have more capability to manage such payment flows.
What Are the Most Common Types of Payments and Currency Exchange Operations in the Travel and Tourism Industry?
Marketing Expense: In most cases, such marketing platforms as Google or Meta take local currency as payment for ads and pay per click. However, there are some other ways of marketing that might require the ability to pay in a foreign currency, for example, copywriting, backlinks, lesser-known marketing platforms like Digital Turbine, and others.
Software expense: Some companies need to pay for their software infrastructure, such as AWS, Google Office, Microsoft, and many more. These payments are mostly in USD, which requires a currency exchange. Especially for bigger companies, it might be an opportunity to save thousands on such currency exchanges using an international digital bank.
International Payroll: Some travel agencies or cruise travel providers operate in several countries that might involve cross-currency payroll and utility payments. Even though those branches might have local bank accounts, currency operations are usually centrally managed from the HQ.
Pricing and budgeting: A lot of travel agencies prepare pricing plans and proposals for international partners that are used for 12 to 24 months. This creates a currency risk that might affect profit margins negatively in the case of currency fluctuations. In many cases, we have helped companies build a resilient currency rate fix that helped protect those margins for up to 24 months. An OTC FX forward is the perfect tool for that.
Budgeting in general can be a difficult task if currency exposures are left unchecked. It is important to have at least partial currency hedges to have a sustainable budget for the next year. We partner with several digital banks that are currency specialists and can help build and execute an effective currency risk management strategy for travel or tourism businesses.
Transportation costs: a big part of the travel and tourism business is transportation. Usually, cruises and flights are booked in USD. In some countries, local banks are struggling with the USD correspondence and exchanges because they lack top-tier banking partners such as JP Morgan or Goldman Sachs that could enable them to be competitive in the USD transactions. For this reason, we recommend using a digital bank that has strong partnerships with American banks and can provide narrow spreads for USD exchanges.
Providing new destinations: quite often, tourism businesses or travel agencies are trying to offer clients new and attractive destinations such as Thailand, Australia, the Philippines, South Africa, Turkey, or others.
In order to be able to price such travel attractively, it is important to have a reliable currency partner that can help save tons of money in local currency exchanges. A real-life example of a client case that we had recently: a travel agency was buying hotel stays and airport transfers in Turkey in bulk. Local partners were accepting only Turkish lira as payment. As the Turkish Lira was decreasing in value throughout 2022, we helped the client reduce the TRY exchange spread by 1%, which allowed them to save roughly 15.000 EUR on a yearly basis. In addition, we helped them reduce payment costs by 50% so they felt less strict about making monthly payments rather than quarterly and potentially saved on a currency value while it was dropping month to month.
Connecting to Payment Gateways:
There are many travel companies that sell their trips online and use payment gateways such as Stripe, WorldPay, and others. Payment gateways allow travel companies to sell their trips online and customers to book trips using their debit or credit cards.
If trips are sold internationally, this automatically generates revenue in multiple currencies that requires a conversion. Some payment gateways offer currency conversion and settlement in local currency; however, this option is costly, as card schemes will take approximately 2-3% on such conversions.
Travel companies can opt to receive settlements in multiple currencies to an already operating multi-currency account with a banking provider and convert those funds at much lower rates in the process, saving thousands.
We have advised this strategy to several online travel businesses, and they are saving enormous amounts of money by simply taking settlement from the payment gateway to the bank account in multi-currencies.
Each case is unique, and we take a close look at how we could help the client optimise their payment workflows or exchange operations by leveraging our banking partners networks. If you operate in the travel or tourism industry, do not hesitate to reach out to us for a free consultation and see how much you could save on international banking!
Ability to send and receive multi-currency payments
What is often overlooked is the ability to receive and send multi-currency payments within 24 hours. Traditional domestic banks do not develop their payment rails in such a manner because for them it is not important. On the other hand, digital banking providers can help companies in the travel and tourism industries receive payments from partners or clients in 30+ currencies and send payments in 50+ currencies to 170 countries via a single account.
Such ability can help many companies perform business development and operations smoothly and without too much hassle. On top of that, we saved a huge amount on transaction costs.
We do often advise clients to think about how their businesses could improve if they had little or no cost for multi-currency payment collection. Or sending small payments to partners internationally would be of significantly lower cost.
And finally, many digital banks enable clients to make mass payments without the need to instruct individual payments separately, thus saving a lot of man hours in the operations department.
Reach out to us to discuss payment flow optimisation solutions in a free consultation!
Conclusion
To conclude, there are many ways and types of transactions where businesses in the tourism and travel industries can save or optimise. Traditional domestic banks are better for local operations and payments, while international banking should be trusted for digitally specialised banking providers.
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