Kantox: The company helping travel firms speak the same FX language
This article has been republished with kind permission from Travolution.
Lee Hayhurst spoke to Toni Rami, co-founder and COO of Kantox, the London-based fintech, about why FX automation is a disruptive force in travel
The international nature of the travel industry means that applying the right foreign exchange (FX) risk management strategies can mean the difference between turning a profit or not.
Indeed, because most travel firms operate with extremely tight margins, effective currency management is a critical competency for many finance departments.
The central challenge is FX risk management. Companies take hedges to lock-in the forward rate of the currencies they need to buy/sell.
Due to the large time gaps between booking and payment that are common in the travel sector, this approach enables travel firms to protect themselves from the risk of unexpected currency fluctuations.
For the London-headquartered fintech Kantox, deploying smart technology to manage firms’ FX requirements not only protects margins, but can also open up new business opportunities.
Co-founder and chief operating officer, Antonio (Toni) Rami, said: “By its nature, travel has a lot to do with currencies and, as a general rule, they are usually a problem for companies in this industry.
“Telling your customers or suppliers that you can take that burden away from them can result in great value for both sides, in terms of lower costs and increased sales.
With currency hedging, you do not know where the currency value is going, but we can help firms be immune to the risk that uncertainty brings. When you’re immune, you can pay in a supplier’s local currency and sell to your customers in their own currency and realise significant value.”
Rami also explained that Kantox is working with all parts of the travel distribution chain from hotels and bed banks, to tour operators and travel agencies.
He said they are educating them about the advantages of automating their FX management and moving away from traditional pre- and ad hoc-hedging strategies into real-time micro-hedging.
This, Rami argues, enables travel firms to remain more competitive in a sector that is using technology to forge more complex supplier connections and moving toward dynamic pricing strategies.
Micro-hedging means firms can hedge each transaction as they occur and in doing so de-risk the impact of FX movements between the booking and collection of the invoice.
Rami also says this is the most accurate way of hedging FX because it no longer relies on individual brokers or in-house traders reading the markets and taking longer-term bets.
By paying suppliers, like hotels, in their own currencies, travel players open themselves up to more supply because many will only sell rooms in their local currency.
And for the hotel supplier using traditional hedging practices, it can lose control of the final room price that the intermediary offers to the end customer.
In addition, leveraging currencies enables retailers and wholesalers to be more price-competitive, because they are not passing on the FX risk to their suppliers, who typically add a premium to room rates to compensate for this.
Kantox works with its travel clients to understand where their bookings are coming from and the nature of the supply side of their business in order to optimise their FX strategy.
“We connect to their booking engine to understand the currencies they trade in,” he said. “It’s very focussed on how the corporate runs its business. We align with what they’re doing in real-time.”
Rami explained that under traditional hedging strategies, firms’ chief financial officers habitually create a false financial picture by being too risk-averse and over-estimating FX costs.
Keep reading this article on the Travolution website.