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Demystifying cross-border payments in travel Webinar January 29, 2015
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How to demystify cross-border payments in travel

Jul 16, 2015

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Page 1: How to demystify cross-border payments in travel

Demystifying cross-border

payments in travel

Webinar

January 29, 2015

Page 2: How to demystify cross-border payments in travel

K

Kevin May

Editor & ModeratorGene Quinn

CEO & Producer

Your panelists

Page 3: How to demystify cross-border payments in travel

K

Kristin Mollison

Technical Product

Manager

WEX Inc.

Noel Goddard

Founder

FTT Global

Your panelists

Page 4: How to demystify cross-border payments in travel

Kristin Mollison, WEX Inc.Noel Goddard, FTT Global Ltd.

Demystifying cross-border payments in travel

Page 5: How to demystify cross-border payments in travel

Agenda• Introduction

• Foreign Exchange Basics

• Foreign Exchange and Cross Border Fees

• Questions

Page 6: How to demystify cross-border payments in travel

Who We Are

Page 7: How to demystify cross-border payments in travel

Cross Border Payments

• Two elements

1. Switching from one currency to another currency (FX)

2. Making the payment from one party to another in a different geography

Page 8: How to demystify cross-border payments in travel

Agenda

• The Basics of Foreign Exchange• What is an “exchange rate”

• Who sets the rates

• How does the FX “market” work

• Risk in a Multi-Currency World• Why is multi-currency becoming so risky these days

• What is the impact of Central Banks on your business

• Opportunities in Cross-Currency and Cross-Border Deals• How to capture Foreign Exchange Profits and retain it

• Managing Cross-border charges and reducing costs

Page 9: How to demystify cross-border payments in travel

What is an “Exchange Rate”

1.52

“ I will take your 1 Great British Pound and in return, you will receive 1.52 United States Dollars from me”

Page 10: How to demystify cross-border payments in travel

What is an “Exchange Rate”

1.52

If an apple in the UK costs £1 GBP, the exact same apple should cost you $1.52 US Dollars in the US*

Page 11: How to demystify cross-border payments in travel

What is an “Exchange Rate”

1.52

The relative value of a “Share” of UK Plc. against the relative value of a “Stock” in USA Inc.

Page 12: How to demystify cross-border payments in travel

What is an Exchange Rate

1.52

If a holiday in the US costs $15,200 USD then it should also cost £10,000 if purchased from the UK !!

Page 13: How to demystify cross-border payments in travel

Who sets the Exchange Rate?

I want to sell 10,000 GBPand will accept USD 15,200 for them ?

I want to buy 10,000 GBPand will pay USD 15,200 for them ?

AGREED….THE DEAL IS DONE

AT

1.52

Page 14: How to demystify cross-border payments in travel

The FX Market

BARC JPMC

BOA DB

CITI UBS

Page 15: How to demystify cross-border payments in travel

Large Entity

Page 16: How to demystify cross-border payments in travel

Large Entity

Large or Mid-sized EntityBARC JPMC

BOA DB

CITI UBS

Page 17: How to demystify cross-border payments in travel

Large Entity

Large or Mid-sized Entity

Small Entity

BARC JPMC

BOA DB

CITI UBS

Page 18: How to demystify cross-border payments in travel

BARC JPMC

BOA DB

CITI UBS

Page 19: How to demystify cross-border payments in travel

BARC JPMC

BOA DB

CITI UBS

Page 20: How to demystify cross-border payments in travel

BARC JPMC

BOA DB

CITI UBS

Page 21: How to demystify cross-border payments in travel
Page 22: How to demystify cross-border payments in travel
Page 23: How to demystify cross-border payments in travel

The FX Market

• No central marketplace and no single source of pricing

• Every FX deal is between two people or entities alone

• The rate you receive will always depend on:

• What rate the person you buy from paid or thinks they will have to pay

• What their margin expectation is

Page 24: How to demystify cross-border payments in travel

Risk in Multi-Currency

• The lack of a central market place introduces both Risks and Opportunity

• Why is currency risk much greater than a week ago, a month ago or 2 decades ago ?

• How can this risk be mitigated and turned into a profit opportunity ?

Page 26: How to demystify cross-border payments in travel
Page 27: How to demystify cross-border payments in travel

BARC JPMC

BOA DB

CITI UBS

€€

Page 28: How to demystify cross-border payments in travel

Speculation

Trade

Page 29: How to demystify cross-border payments in travel

Speculation

Trade

Page 30: How to demystify cross-border payments in travel

Algorithmic

Speculation

Trade

Page 31: How to demystify cross-border payments in travel

Government

Intervention

Page 32: How to demystify cross-border payments in travel

Case Study – Swiss National Bank

• 2010 – The global economy is in deep recession and many Hedge Funds are seeking “Safe Havens” for their billions (usually US Dollar and Gold) and selling EUR.

• 2011 - The US Dollar is under pressure of weakening due to QE (Quantitative Easing), so the funds start buying CHF and selling EUR instead

• SNB warns them to desist as the increase in value of CHF against the EUR is killing exports and tourism.

• SNB acts and tells the market that they will sell CHF against the EUR without limit to hold the EUR.CHF rate at 1.20

• The Hedge Funds set up Algorithmic Trading models to continually test the floor and SNB do likewise to constantly buy at 1.20

Page 33: How to demystify cross-border payments in travel

Case Study – Swiss National Bank

• 2013 – Many retail gamblers enter the EUR.CHF deal to also capture free profits from this artificial intervention

• 2014 – SNB is now holding 45% of the value of GDP in EUR denominated products (cash, bonds, etc.)

• 2014 – European Central Bank considers 1.1Trn of QE and Greece election risks destabilizing the EUR

• 2015 – SNB takes snap decision to pull the 1.20 policy and instead charge 0.75% negative interest on those holding CHF

• Speculators are caught unawares and algorithmic models all have similar instructions to act and protect losses …

Page 34: How to demystify cross-border payments in travel

Case Study – Swiss National Bank

Page 35: How to demystify cross-border payments in travel

How to protect yourself

• Understand the currency risks and exposure in your business today (the risks may have been hidden by luck/low volatility)

• Do not be the company holding one currency (EUR) and needing to buy another currency (CHF) when the movement comes

• As soon as you have any exposure, pass the risk on to someone else, ideally immediately but soon as possible

• Don’t assume that “it will be OK, the rate will recover at some point”

Page 36: How to demystify cross-border payments in travel

Seize currency opportunities

• Once you have the risks under control, multi-currency pricing delivers significant revenue opportunities, without risk.

• If you control the presentation of pricing to the customer, you should be capturing the FX Revenues, rather than passing it to a 3rd party to manage, price and control.

• In traditional models, this would also mean either absorbing currency risk or giving away the majority of the revenue to protect the 3rd Party.

• With real-time management of currency risk, the potential exists to capture all the revenue, deliver a better service to customers and still outsource the risk to a 3rd party.

Page 37: How to demystify cross-border payments in travel

You Control the Exchange Rate

I want to sell you a holiday normally priced at $14,900 USD…

I want to buy a holiday for 10,000 GBP please…

Page 38: How to demystify cross-border payments in travel

You Control the Exchange Rate

I will sell you the holiday at 10,000 GBP (The rate of exchange is 1.52 therefore generating 300USD or 2% of FX Revenue).

I get the holiday I wanted at the price in GBP that I wanted without FX Risk

Page 39: How to demystify cross-border payments in travel

WEX Solutions

By booking the transaction via WEX Virtual Platform, I have booked the 10,000 GBP and the WEX solution has automatically sold the GBP 10,000 and I will receive 15,200 USD, locking in my 300 USD of FX Revenue.

Page 40: How to demystify cross-border payments in travel

Virtual Payments - Cross Border and FX Fees

Page 41: How to demystify cross-border payments in travel

Virtual Payments – Cross Border Fees

Payer

Merchant

Non-Domestic

CB = 80 bps

Page 42: How to demystify cross-border payments in travel

Virtual Payments – Cross Border Fees

Payer

Merchant

Intra - SEPA

CB = 3 bps

Page 43: How to demystify cross-border payments in travel

Virtual Payments – FX Fees

CAD $

USD $

MXN $

BRL R$

GBP £

EUR €

SEK kr

NOK kr

CHF

ZAR R

HKD $

THB ฿

MYR RMSGD $

AUD $

NZD $

AED

DKK kr

JPY ¥

PLN

Page 44: How to demystify cross-border payments in travel

Virtual Payments – FX Fees

CAD $

USD $

MXN $

BRL R$

GBP £

EUR €

SEK kr

NOK kr

CHF

ZAR R

HKD $

THB ฿

MYR RMSGD $

AUD $

NZD $

AED

DKK kr

Payer

Merchant

Domestic

FX = 0 bps

JPY ¥

Page 45: How to demystify cross-border payments in travel

Virtual Payments – FX Fees

CAD $

USD $

MXN $

BRL R$

GBP £

EUR €

SEK kr

NOK kr

CHF

ZAR R

HKD $

THB ฿

MYR RMSGD $

AUD $

NZD $

AED

DKK kr

Payer

Merchant

Non-Domestic

FX = 20 bps

JPY ¥

Page 46: How to demystify cross-border payments in travel

Virtual Payments – FX Fees

CAD $

USD $

MXN $

BRL R$

GBP £

EUR €

SEK kr

NOK kr

CHF

ZAR R

HKD $

THB ฿

MYR RMSGD $

AUD $

NZD $

AED

DKK kr

Payer

Merchant

Intra-SEPA

FX = 10 bps

JPY ¥

Page 47: How to demystify cross-border payments in travel

Virtual Payments - CB and FX Fees Summary

• Cross Border Fees

– Issuing country vs. Merchant country

– Can be reduced by issuing from multiple countries

• FX Fees

– Virtual Card Billing Currency vs Merchant Currency

– Can be reduced by issuing in multiple currencies

Page 48: How to demystify cross-border payments in travel

Thank you!

Send your questions and comments to

[email protected]

Replay and presentation of webinar will be available on

www.tnooz.com