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Over the past few years, there has been an increased focus on consumer and supplier payment processes within the travel and hospitality industry.
Historically, the sector has not had the attention it warrants. Perhaps because payments are complicated and not really part of the “travel” hierarchy. Payments have existed in a silo, a functional transactional process that comes after all the super-exciting stuff – the marketing, the product development, the personalisation – has served its purpose.
But macro tailwinds are helping propel the sector into the spotlight. The general shift towards a cashless world means consumers are generally more aware of their options around payments. Services such as Amazon Prime are normalising one-click payments. Globalisation means that “digital wallets” are moving from their Chinese breeding ground into APAC, Europe and North America.
A clear indication that payments are maturing comes, appropriately, by following the money. “Fintech”, or financial technology, has rocketed as an area of interest for investors.
KPMG said that global fintech funding rose to $111.8 billion in 2018, a 120% increase from 2017. Accenture used a different methodology and came up with a smaller total –$55.3 billion – but still noted a triple-digit percentage increase on 2017.
People at the leading edge of the payments industry are excited by the immediate future and have been for some time.
Dan Schulman, CEO, PayPal said back in 2016: “We are going to see more change in the financial services industry in the next three to five years than we have seen in the last 30 years”
Payments’ time has arrived.
The WTTC says that travel and tourism’s contribution to the global economy in 2018 was US$8.8 trillion, of which US$2.8 trillion is a “direct” result of travel and tourism (rather than indirect or induced). Trillions of dollars are changing hands between the traveller, the agent and the supplier. Payments must be made across borders, in different currencies, in real-time, securely while complying with global and local regulations.
There are B2B and B2C considerations at play. At the risk of oversimplifying, when a traveller books through an agent - offline, online, corporate – there are two payment processes to consider. First of all, the money needs to come out of the traveller’s account and into the agent’s account. The agent then has to get that money to the supplier of the product which the traveller has bought.
Payments is one of Amadeus’ strategic growth businesses, headed up by Bart Tompkins who moved across last April from running Amadeus China. There are 175 people in the company dedicated to payments, with a specialist unit set up in 2012. In 2018, the unit had 1,000 travel clients and processed more than €100 billion in payments during the year.
Last month Amadeus hosted its first ever “Future of Payments” event in Madrid, the latest in a line of targeted invitation-only networking and educational get-togethers. One recurring theme across the two days was that B2B and B2C processes are evolving independently, at the same time as they are starting to shape each other.
China is leading the global charge towards digital payments, with other markets in Asia Pacific including India not far behind. The momentum in China is coming from the region’s mobile-commerce expertise. The volumes are eye-watering. In 2017, mobile payments accounted for $16 trillion worth of transactions in China. In the US, the comparative figure was $206 billion.
In this context, the big players in the region’s travel sector have approached the payment processes more strategically than peers in so-called mature markets. Ctrip has moved beyond being “China’s biggest OTA” to become the third or fourth largest travel business in the world depending on what metrics you use. It launched Trip.com as its brand for markets outside China in 2017, a year or so after its $1bn purchase of Skyscanner, giving it a significant global footprint.
So, when it comes to payments, a lot of money passes through Ctrip’s hands. In 2018, Ctrip’s financials revealed a gross merchandising value for the year – excluding Skyscanner – of more than $100 billion.
Chee Teong Ooi (CT) is its senior director for international air business and has helped build Ctrip’s relationships with airlines outside China. One payment trend he wanted to share was the growing use of digital wallets – by consumers at least - outside China.
“Almost 70% of Ctrip flight orders in China is settled using either Wechat Pay or Alipay digital wallets,” he told attendees at the Madrid event. “On the other hand, for trip.com 86% of our consumer orders are by credit card, and 14% are using digital wallets. But we’ve gone from zero to 14% within the past year or so and we expect to see this upward trend continue”.
Digital wallets are, for now, a B2C option at Ctrip. But Stefan Ropers, who heads up the Strategic Growth Businesses unit, has noticed that B2B digital wallets are starting to be used for supplier payments in the Middle East, India and Japan.
Ropers, who joined Amadeus earlier this year, also oversees Amadeus’ innovation functions and identified “eliminating friction” as one of his units’ areas of interest.
In the complicated world of payments, there is a lot of friction to be eliminated. Digital travellers expect to be able to pay quickly and securely and any friction in the process can be met with cart abandonment, negative brand sentiment and a dent in marketing ROI. Ropers described payments as “the make-or-break customer interaction point” – without a payment there is no sale.
But the friction within agent-supplier payments can also be make-or-break. Ropers suggested that agents should reposition the reactive “eliminating friction” with a more proactive “improving efficiency”. The most effective way for agents to do this is via virtual cards. Virtual cards are not new in travel, but over the past 18 months or so the technology around them has matured and the benefits of using virtual cards have grown.
Agents need to be efficient because of the tight margins in the industry, particularly when dealing with airlines. With virtual card partnerships and processes in place, agents are getting close to one-click payments for suppliers, mirroring what consumers expect. This is an example of where B2C is starting to influence B2B.
Elsewhere, “big tech” is supercharging the current benefits of virtual cards, with machine learning, big data and artificial intelligence coming into play. Amadeus has developed an orchestration layer into its Xchange Payment Platform, which decides the most efficient way to route payments using data-driven analytics.
Virtual cards can be debit, credit or prepaid. The orchestration layer will use customer business rules to decide which is the most efficient way to pay, factoring in costs, forex, supplier preference and more.
Many innovations within the agent-supplier payment flows are sector-agnostic and are driven by wider big data/fintech developments. The mantra that digital transformation is as much about mindsets as technology is as true for payments as any other business function.
New commercial models are emerging within B2B payments with different use-cases for virtual cards an area of specific interest. Amadeus B2B Wallet Partner Pay is a new product from Amadeus which lowers cost, improves efficiency and builds loyalty in B2B payments between agents and airlines. In a trial with Thai Airways and Swedish travel agency Select Travel, efficiencies in fraud prevention, chargebacks and cash flow led to a 70% reduction in costs compared with other payment methods.
According to IATA, there are some $236 billion-worth of payments passing from agents to airlines every year. When margins in air are so tight any efficiency improvement or cost reduction within the B2B flow is to be welcomed. Tomkins however noted that despite the quantifiable financial and operational benefits of virtual cards, there still remains an opportunity for many in the industry to benefit.
And, as is often the case, legacy mindsets are applying the brakes. Familiarity with the hotchpotch of incentives, chargebacks, fees and rebates which bounce around between airlines and agents is blinding many to the potential benefits of new processes such as virtual cards.
Margins will get tighter, competition will get stronger, technology will get better. In this context, improving efficiency should be everyone’s mission statement and looking at payment processes is a good place to start.