The travel and tourism sectors is undoubtedly one of the greatest businesses in the world, literally a multi trillion dollar industry fueled by billions. The World Tourism Organisation says that around 1.4 billion international tourists are recorded each year, and with each one comes a transaction, a payment, a financial exchange. However, the monetary fabric that feeds this enormous flow of funds is quite often rather under sophisticated. Most of the time, hotels dealt with payments using what appears to be an old fashion approach. Reports claim that an average hotel has 6 to 10 payment methods. This sort of dispersal generates a financial maze that aids to unnecessary costs. According to the CEO of Collect&Pay, George Arakelov, ‘In the hospitality industry, the absence of efficient payment modes is a huge resource drain and for most of the times that cost is huge for the business’. It is necessary to consider how countries could incur losses if only the real costs of this method are determined.
The Invisible Costs that Impede on the Profitability
Turning money in to cross-border transactions that flow in and out with the hospitality industry is never a straightforward process as every transaction comes with a variety of hidden fees and costs. McKinsey estimates that a cross border transaction estimates to be anywhere between 1.5 and 3.5 percent, add a few extra points to that for smaller businesses. There’s also the currency conversion to consider, where the providers can butter on an additional two to four percent for the conversion mark up making the total loss greater than five to seven percent during an international business transaction. Every booking made pays an additional percentage to every transaction made. Anthony bridges the Chief Finance Officer of Collect&Pay states that while businesses looking out for tight margins can run into these hidden costs these markups can greatly annoy businesses that run out of thin margins.” To add onto the bitter experience, Cross border transactions are another major contributor to the US hospitality industry multiline.
Statista states that the average booking done for a four day trip sums up to 1800 dollars, this way of looking at it makes adjusting every booking cost seem to be around 10 percent even though its just a few extra pennies. Profits shouldn’t be eroded through overdraft fees, and the cost of doing business should be straightforward.
Cost of Time, Inefficient Processing
Time takes money, and the payment industry in hospitality is one of the most quintessential-reason why many consider time money. According to the World Bank, cross-border payments take at least 3 to 5 working days to clear. This long wait period is not just a short-lived discomfort but a substantial hindrance to the working capital cycle of an organization. Companies such as tour operators who deal with large group bookings would not be able to access the money for several days after the booking agencies pay. What is the result of all this? A delay in operations, inability in meeting suppliers’ payment deadlines, and most importantly the money directly during crucial times. A study by Visa shows that speedier payments raise the number of transactions by approximately 15%, so any delay lowers the cash flow for hotels and tour operators. But this is a big deal – this is a direct cost, a waste of money. Collect&Pay Chief Marketing Officer Dzhamel Mimoun says, “The world today is dynamic in every aspect, and processes such as payment are often delayed leading to process redundancies which stunts business growth after a while.”
Typically, the financial department of any hotel is flooded with paperwork which makes it difficult for the staff to assist in matching different transactions with different formats and sources. More than 20 payment methods are addressed per hotel daily, such a claim by a Deloitte survey indicates a considerable amount of working hours. Payments received from different resellers or customers have to be matched manually. It involves too many steps and time, and there are too many chances of making an error. The study done by the American Hotel and Lodging Association indicates the amount of time hotels spend on reconciliations on a weekly basis is around 10 to 15 hours. “Businesses are using manual reconciliation processes not only spend a lot of time on them, but they are also exposed to errors as well as compliance risks,” notes Guldana Ablanos, Chief Compliance Officer at Collect&Pay.
Modern payment solutions are not limited to bringing in funds. They facilitate the operations of a business. In comparison with an integrated platform, independent hotels are likely to incur up to 15% increases in the processing fees. Instead of using obsolete systems, amalgamated systems enable hotels to use a single interface for multiple systems which reduces costs as well as complexity. With the help of these systems, payments can be made instantly and funds can be accessed immediately which removes the waiting time associated with payment processing. Automated currency exchanges at viable rates assist hotels in mitigating risks posed by ever changing exchange rates.
According to research, the modern fintech tools have reduced the costs associated with transactions by 12% and the time it takes to process them by 60%. In addition automated reconciliation greatly reduces accounting errors as well as time, thus able to deliver consistent and precise current reports. Such hotels adopting these solutions are able to achieve monumental savings. By minimising expenditure and optimising operations, there are great financial directly visible implications.
What does this mean in practice: example
There was a hotel group, lets call it GlobalStay, that faced a number of challenges. They were incurring a cost of 3-5% of revenue in form of processing fees. The company spent a lot of time on manually matching a variety of payment methods and methods which needed a lot of time. As a solution the business wanted to integrate Collect&Pay’s advanced payment solution. The result was that transaction costs decreased by 12%. There was also an easing of operational expenses by 20% due to a reduction in manual operations. Improved customer satisfaction and a 10% uptick in repeat reservations all contributed to this improvement. There were considerable benefits of not only cost savings but also dollars generated.
The hospitality industry worth the trillions of dollars yearly needs a more pragmatic solution. Outdated practices tend to carry a huge cost and waste hours, resources, and revenue. Today, modern payments provide a way to reduce those expenses, streamline processes, and improve profitability significantly.
Find out how modern services like Collect& Pay can fundamentally evolve your financial workflows, so that every payment processed is an opportunity of value rather than an expense.