The Changing Travel Payment Landscape
In the wake of a transformative era spurred by the pandemic and shifting travel behaviours, the travel industry finds itself at a pivotal juncture. Modern globetrotters, shaped by the evolving landscape, now seek versatile and budget-friendly choices, with an insistence on instant and hassle-free payments. This seismic shift has given rise to a crucial question: Why does the travel industry need a payments revolution?
The significance of payments networks and methods in the travel industry cannot be overstated, especially considering the International Air Transport Association’s (IATA) revelation that the global airline industry processes a staggering $600 billion in payments. Against this backdrop, platforms offering diverse payment methods have gained tremendous popularity, fuelling the widespread adoption of varied payment options. The digital era has ushered in a new normal, with over 60% of global travel bookings now taking place online. While, mobile payments, reflecting this digital penetration and the rise of polymorphic payments, constitute over 30% of global travel bookings in 2022[1].
Payments, at the core of innovation, have become a magnet for venture capital investment. CB Insights reports a remarkable increase in funding for payment startups, reaching a record $102.4 billion in 2022, a significant jump from $50.5 billion in 2021, representing a staggering compound annual growth rate (CAGR) of 82.6%. Concurrently, the travel industry has experienced a surge in payments volumes over the past two years, boasting a 5-year CAGR of 11.2%. This upswing, coupled with the current evolution of payments, calls for a critical re-evaluation of our perspectives on how payments unlock value.
The Three-Dimensional Value of Digital Payments
Customers traditionally viewed payments as merely an overhead cost rather than an aspect that enhances their travel experience. However, the tide is turning as modern customers now seek greater freedom and flexibility in their payment options. In the ever-evolving landscape, the convergence of digital payments, dynamic wallets, and real-time settlements is not just reshaping transactions; it’s redefining the entire payment experience. This pivotal shift toward Experience Centricity marks the onset of a new era, presenting travellers with a myriad of possibilities that extend beyond the traditional confines of payment processes. Going forward, the focus is on seamless, flexible solutions aligning with customer desires for smoother, more enjoyable travel payment experiences.
Unlocking Seamless Journeys with Experience Centricity
Empowered by open APIs and integrations, embedded commerce is revolutionizing travel payments, offering a smooth process for travellers free from the complexities of multiple portals and logins. The array of options, including Credit, Debit, Wallet, Prepaid, Coupons, Account Transfer, and even Crypto, highlights the emergence of the new-age payment methods.
A notable aspect in today’s travel payment landscape is the “Buy Now Pay Later” (BNPL) option. Platforms like MobiKwik’s “ZIP” on EaseMyTrip, Etihad Airways with “PayPal Credit” and “Klarna,” and Expedia featuring “Affirm” provide BNPL services for flights, hotels, and holidays. Beyond facilitating upfront-payment-free purchases, BNPL promotes upselling, enhancing customer retention with a focus on convenience and flexibility. While luxury hotel Novotel Bahrain Al Dana Resort has made waves by embracing crypto payments, aligning with trends set by online platforms like Expedia and pioneering airlines such as Virgin and Vueling. This strategic move ensures secure transactions and contributes to a globalized payment landscape. Simultaneously, AirAsia’s Super App has transformed access to travel products through AirAsia Pocket, a closed-loop e-wallet simplifying in-app payments and rewarding users for a seamless experience.
Furthermore, personalization takes centre stage for travel companies, facilitated by embedded finance seamlessly integrating financial services. Airlines are able to diversify revenue streams by offering travel insurance, hotel reservations, and transportation choices within a single booking. This unlocks various payment options, including loyalty points, buy now pay later, e-wallet miles, and additional benefits for travellers.
We are also observing a seismic shift in challenges, notably with issues like chargebacks and refunds, which have historically posed difficulties for both customers and support services. The travel industry, faced by a significant surge in cancellations (a remarkable increase of over 200% in 2022, amounting to over $250 billion in the US alone), requires a more efficient and streamlined process. In this space, implementation of intelligent automation, and analysing data on refund patterns, evidence requirements, and reason codes, companies can automatically align refunds with the appropriate payment schemes, significantly enhancing the success rate of refund requests on the first attempt.
In this era of innovation, the overarching theme is Experience Centricity, shaping the entire travel journey. It’s about cultivating an environment where each interaction, from payment initiation to post-transaction processes, contributes to an unparalleled travel experience. This isn’t just a revolution in payments—it’s a revolution in how we envision and experience travel.
Nurturing Trust Through Responsible Travel Payments
As Responsible Payments redefine the travel industry, trust has become paramount. To instill this trust and facilitate a new era in travel transactions, payment authentication that blends security with convenience is crucial.
A cornerstone of this authentication process is the rising prominence of biometric authentication. The travel industry is taking the lead in adopting innovative biometric methods like Voice, Iris, Fingerprint, and Multifactor-based authentications. These methods are embraced for their ability to provide a secure and personalized payment experience. For instance, Mastercard’s “Smile to Pay” initiative is a prime example of combining security with an engaging user experience. Moreover, mainstream biometric payment methods like ApplePay and GooglePay have become prevalent in both retail and travel, paving the way for biometrics to extend beyond airlines in the future. These methods are poised to encompass identity verification for secure payments throughout the entire travel journey, encompassing train tickets, seat upgrades, in-flight meals, and hotel check-ins/checkouts, ultimately enhancing the overall travel experience and security.
This payment revolution goes beyond authentication, reshaping the entire transaction process. Travel companies are now adopting “invisible payments,” similar to Uber. With reauthenticated risk limits, customer identity is verified, and payments are authorized before completing bookings, eliminating the need for payment details during the process. This streamlined approach boosts efficiency and saves time. Last-mile delivery services across industries use the same method, relying on customer profiles for identity verification and payment authorization. This ensures orders proceed despite technical glitches, preventing cancellations and ensuring timely deliveries. Overall, it creates a more seamless and efficient payment process, fostering customer loyalty and trust.
Travel companies play a vital role in ensuring transaction safety through counterparty assurance mechanisms that protect payers from fraud. This commitment not only safeguards users but also boosts overall trust in the payment ecosystem. Similarly, Central Bank Digital Currencies (CBDCs), powered by blockchain, present a promising option for travel payments. These digital currencies enable fast and secure online value exchange, potentially revolutionizing cross-border, cross-currency payments, and industry settlements in the travel sector. If widely adopted, CBDCs could offer faster and more cost-effective transactions for travellers, building trust and convenience.
In today’s world that is prioritizing sustainability and climate change, responsible payments go beyond security to environmental consciousness. Zero paper payments and hyper-automated processes become imperative for travel companies, aligning with sustainability goals. This not only contributes to industry-wide efforts but also empowers travellers to embrace a high green index in both financial and non-financial interactions.
In essence, responsible payments are shaping the future of travel transactions, fostering trust, enhancing convenience, and promoting sustainability for the benefit of both travellers and the travel industry as a whole.
Enhancing Efficiency Amidst Rising Payment Volumes
As the travel industry grapples with the ever-increasing volume of payment traffic, efficiency is taking centre stage. Recognizing payments as a critical value driver, the industry is leveraging data, analytics, and innovative solutions to ensure seamless processing, faster clearing, and enhanced settlement. Within the travel sector, where payment transactions are surging, the focus is on enhancing efficiency. Recognizing payments as a crucial driver of value, the industry is employing data, analytics, and innovative solutions to facilitate smooth processing, rapid clearing, and improved settlement.
Achieving nearly 100% Straight Through Processing (STP) is considered essential due to the continuous growth in payment volumes. Human efforts alone are insufficient to handle the sheer number of transactions, making STP pivotal for ensuring seamless payment flow from initiation to settlement without manual intervention.
The utilization of data and analytics allows travel companies to predict potential functional and technical failures, enabling proactive measures to enhance the success rates of various payment methods. This foresight not only prevents potential issues but also guides informed recommendations for payers.
Efficiency receives an added boost through automated routing, guiding payments along the most successful routes. This expedites clearing and settlement processes, ensuring swift and accurate transaction processing. The deployment of STP accelerators and enrichment solutions enhances data elements, contributing to the speed and accuracy of settlements.
As the travel industry embraces the Efficiency dimension in payments, the integration of predictive analytics, automated routing, and STP accelerators lays the groundwork for a future where transactions flow seamlessly, offering not only speed but also accuracy in payment processing.
The Symbiotic Bond of FinTech and Travel
Moreover, the convergence of digital payments and the travel industry is leading to an unstoppable fusion, combining their unique strengths. JPMorgan Chase, an established financial services provider, recently unveiled Chase Travel with the goal of processing $15 billion in gross bookings annually by 2025[2], making strategic acquisitions to strengthen its position in the travel sector. Similarly, Amadeus, a leading travel tech company, has embraced this cross-over by acquiring Kambr, a startup in airline revenue management, and launching Outpace, a subsidiary simplifying payment for travel companies. These collaborations promise exciting innovations, shaping the future of the travel industry.
In the current state, the relationship between digital payment providers and the travel industry has evolved into a symbiotic partnership. Fintechs are reshaping travel by replacing complex legacy systems with streamlined solutions, and travel companies are providing growth opportunities to Fintechs. By nurturing these partnerships, both industries can integrate their distinct needs into a single platform, unlocking substantial growth potential. Going forward, this collaborative evolution promises a more enjoyable and integrated experience for customers, significantly benefiting travellers and businesses alike.
Conclusion
In this era of continuous innovation, travel companies must view payments not just as a transactional necessity but as a dynamic force for positive change. By embracing disruptive payment innovations, businesses can redefine their relationships with travellers, foster responsible practices, and create a win-win scenario that propels the entire industry into the next level of efficiency and excellence. Now is the opportune moment to reinvent payments and embark on a journey to reimagine payments in travel, shaping a future where convenience and choice reign supreme.
[1] https://www.stratosjets.com/blog/online-travel-statistics/
[2] https://skift.com/2023/01/10/big-banks-chase-a-much-bigger-piece-of-the-travel-market/
| AUTHORS | ||||||
Ashish Kumar |
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