Q: Let’s begin with a snapshot. How do cross-border transactions and FX rate shifts pose difficulties for organisations like yours?
A: Under the current environment where FX variations are significant and unpredictable, paired with our online B2B travel industry with smaller margins, the need to avoid margin erosion is paramount, either from FX fluctuations or from high banking cross border fees and currency exchanges.
Q: What measures are travel wholesalers and bed banks currently taking to deal with the unpredictability of FX and international payments?
A: Some of the most common measures are hedging mechanism to protect for future variances, yet other less sophisticated and natural actions are also in practice such as aligning your buy currency with your sell currency, making sure contracts are signed under stronger less fluctuating currencies (stronger currencies), and making sure you can collect your preferred currencies worldwide (minimising cross-border exchanges and fees).
Q: Would you be able to shed light on any recent financial hits these organisations might have experienced due to these currency challenges?
A: Look at the EUR vs USD exchange rate for the last year, Nov 2022 had a 1:1 (1 dollar per 1 euro conversion), since then a steady fluctuation reaching 1:1.10 as early as Feb. That means if you were selling in USD and buying in EUR you would have lost 10%, hence likely eliminating all your profitability if not protecting mechanisms is in place, (yes, the above example assumes selling in Nov and the payment obligation to the hotel in Feb). Losing that much in an industry where the margins are thin and most always below 10% then you can imagine the huge impact for that company.
Q: There’s buzz about embedded FX solutions. Do you see them as a remedy for these FX challenges?
A: These FX solutions that are widely available in many different shapes do and will help resolve in a good proportion the FX challenges without the need to become an expert FX trader yourself nor to have a dedicated team to do this.
Grain’s unique model outsources 100% of the FX risk away from your operations. It addresses the challenge and risks of safeguarding not just the bedbank from currency risks, but also its customers, thereby enhancing a bedbank’s competitiveness.
Q: How might such solutions be transformative for CFOs in the travel industry?
We can accurately predict and protect our results without having surprises (pleasant or unpleasant) on the FX, we are able to offer clients currency alternatives adding value and convenience to our offering and very important we are able to dedicate our resources to other value adding activities within finance and business support.
Grain allows bedbanks to accept payments in their customers’ local currencies over local payment rails in each country, while the bedbank receives the payment in their functional currency without taking any FX risk. Adopting this approach creates certainty and stability in planning for CFO’s yearly P&L.
Q: Considering the high rate of cancellations in the travel world, how do these solutions adapt?
A: Most of the solutions I have seen in the market today, all are very technologically advanced, they have integrated in their offering, analysis and trading the cancellation factor including negotiating with the banks or financial institutions who are executing the trades so you can replace the amounts with valid reservations for similar periods of time and not get penalised nor charged extra for doing so.
Grain is instrumental for a bedbank’s operations as the only fintech solution out there tackling the high rate of cancellations in travel by offering hedging on 100% on transactions, including future cancellations.
Q: What’s the roadmap for businesses to choose the right FX solution tailored to their needs?
A: Clearly not the case of one size fits all, but understanding the relevance and possible impact with your current pricing and currency setup is a good start, then making sure you can naturally hedge some of your risk (aligning buy and sell currencies and if possible in the same geography), then talk to many of the partners offering FX solutions to see which one is a best fit considering your size, exposure, technology setup, etc.
Grain is an end-to-end embedded cross-currency solution that empowers software platforms and marketplaces to effectively eliminate FX risk for their end customers. Through the user-friendly and automated tool, Grain’s partners and their customers can easily secure currency rates into the future and conduct seamless cross-border fund transfers. Grain uniquely offers travel platforms the assurance of hedging 100% of their transactions, encompassing even future cancellations.