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Virtual cards and foreign exchange

How virtual cards empower you to manage fluctuating exchange rates

April 2, 2024

International travel by Americans has rebounded to levels that are even higher than they were before the COVID-19 pandemic. As a result, record traveler numbers and revenues are expected in 2024, according to the International Air Transport Association. For travel companies that work in international markets, there are risks and variability baked into making payments that require currency exchange. Fortunately, virtual cards can help mitigate some of the unpredictability. 

Your challenge with foreign exchange variability

World currency values fluctuate minute by minute, which can be sharp and unpredictable. Differences in currency values and foreign exchange rates can be great for international travel businesses. 

For example, when the U.S. dollar is strong against another currency, that’s one factor that will entice Americans and their companies to book more international travel. And that increased volume benefits online travel agencies (OTAs), tour guides, and others in the service industry. 

Global and political events can create dramatic fluctuations in currency value. Brexit, the U.S.-China trade war, and the COVID-19 pandemic all had big effects on currency values recently. 

Managing multi-currency fees

Another concern is the payment of fees associated with business in different currencies. When currencies are exchanged, there is a fee for the conversion. If payments are made by card, there are cross-currency or cross-border fees.

These costs are assessed for each transaction and typically add around 3% to the cost of the transaction. This may seem minimal, but if a company does extensive business with international suppliers, the fees add up quickly and can be significant.

How virtual cards can help you manage this volatility

Virtual cards are a go-to option for many travel companies as a way to manage the unpredictability of international markets and foreign exchanges. Paying with virtual cards has perks specific to exchange rates and international spending because: 

  • Certain providers support payment in different countries and currencies. For example, WEX’s payments provider capabilities have a global reach and support approximately 20 currencies. That way you can pay suppliers in the currency of their choice, which will improve your ability to negotiate the best rates. 
  • Virtual card payments can be made much faster than physical card or check payments. Reducing lag time can decrease the risk of unpredictable currency fluctuation.
  • And with so much distance to cover, virtual cards are a much more secure payment method. For example, virtual cards have been shown to be seven times less likely to be subject to fraud than check payments. 

Other helpful hints

There are other considerations when paying international suppliers. One option is to negotiate the rate and pay suppliers in U.S. dollars. While easy for the accounting department, there are drawbacks to this approach. The travel company may incur fees for a cross-border transaction and the supplier may also be charged a fee for receiving the payment. 

Since payments are converted into the home currency at the rate set by the supplier’s bank, the rate may not be optimal. In addition, since the supplier is essentially managing the foreign exchange risk, they likely are setting their prices higher to account for this risk.

Doing business internationally will always pose some risk, as currencies fluctuate daily. But with the right foreign exchange strategy, businesses can minimize their risk while taking advantage of the booming international travel market.

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The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own legal counsel, tax and investment advisers. 

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