Currencies: A Profitable Payment Option for Travel Companies

The travel industry is at a critical juncture, with B2B and B2C distribution companies facing the convergence of two significant trends. On one hand, customer surveys reveal a strong desire to make travel purchases in their local currencies, highlighting the 'currency imperative.' On the other hand, bed banks, flight consolidators, and OTAs are feverishly experimenting with new payment methods, driven by the 'Fintech imperative.' Can these companies successfully leverage these trends to enhance the customer experience while boosting profits? Let's explore.

An Overwhelming Preference: The Currency Imperative

The 2024 Travel Trends Report indicates that a staggering 75% of travelers consider it crucial to be able to buy travel in their local currency. This preference is even more pronounced among Asians, with 81% expressing a desire to do so compared to 71% of Europeans and 72% of North Americans. A survey by Amadeus further emphasizes this point, showing that 71% of travelers spend more when shopping in their own currency, 74% are concerned about the final bill when buying in a foreign currency, and 80% prefer to shop and pay in their own currency. These data clearly demonstrate the significant role that the currency imperative plays in shaping customer behavior.For travel companies, meeting this currency preference is of utmost importance. In today's business ecosystem, customers are at the center, driving economic growth. By allowing customers to make purchases in their local currencies, companies can enhance customer satisfaction and loyalty.

Stealing the Show: Payments and the 'Fintech' Imperative

Parallel to the currency imperative is the rapid 'fintechisation' of the travel industry. As Montreal-based travel app Hopper.com states, the aim is to improve the traveler experience while unlocking new revenue streams. Features like frozen prices and travel insurance are becoming more prevalent, but payments solutions truly steal the show.Embedded payment gateways are all the rage among cloud-based property management system companies like Mews, as they enhance security and improve the guest experience. Other popular solutions include Buy Now Pay Later (BNPL) and instant payments. According to ACI Worldwide, 90% of travel firms consider fintech and payment as a priority, with BNPL and fast payments being the most widely considered new payment solutions.Instant payments also deserve attention. Many SMEs in the travel space see them as a way to achieve a healthy balance sheet while improving convenience, risk management, and cash flow. A recent survey by PYMNTS found that more than 8 in 10 hospitality SMBs send instant payments, and more than 4 in 10 use it as their most common payment method. Additionally, 79% of hospitality SMBs expect to send more payments using instant payment options, and 42% and 47% of those generating more than $1 million in annual revenue cite it as their most used method.

Not So Fast: A Reality Check

While the potential of instant payments is great, US Federal Reserve Board member Christopher Waller warns that it may not lead to the seamless integration of the currency and Fintech imperatives as quickly as expected. In a recent speech at the Global Fintech Fest in Mumbai, he highlighted the technical challenges and the 'legal, compliance, settlement, and governance challenges' that need to be overcome.For example, achieving interoperability between fast payment systems across the world is not an easy task. However, a case in point is the incorporation of the Danish Krone into TARGET Instant Payment Settlement (TIPS), scheduled for April 2025. This shows that technical feasibility is not the only hurdle; the interplay between governments and the private sector within each country also adds to the complexity.

Currencies as a Profitable Payment Method

Here's a bold assertion: The travel industry's focus on payments is preventing participants from capitalizing on the most commercially successful solution of all - currencies. Instead of seeing foreign exchange as a barrier, treating currencies as a profitable payment method opens up a world of opportunities.Thanks to multi-dealer platforms like 360T, corporate treasurers can execute trades in the currencies of small, well-managed economies in favorable liquidity conditions. This allows finance teams to expand the range of currencies used in daily commercial operations.FX-oriented Fintech solutions go beyond currency trading. They enable companies to automate currency management tasks such as pricing, risk control, and governance, which were previously unimaginable. These solutions can handle any number of transactions and currency pairs, a crucial feature in the travel industry. Moreover, they provide managers with the tools they need to sell in more currencies, buy in the currencies of suppliers, and centralize FX management.By addressing both the Fintech and currency imperatives simultaneously, bed banks, flight consolidators, OTAs, and airlines can become more customer-centric while remaining profitable. They can optimize FX markups, reduce cart abandonment, and improve credit risk. In the B2B sector, they can buy in the currency of suppliers to avoid FX markups and take advantage of interest rate differentials. Large bed bank operators can centralize FX management to reap the benefits of exposure netting and obtain better terms from banks.In conclusion, the travel industry has a unique opportunity to leverage the currency and Fintech imperatives to enhance the customer experience and drive profitability. By understanding and addressing the challenges and opportunities presented by these trends, companies can position themselves for success in the evolving travel landscape.