Helping travel take off again
How payments innovation can support recovery in the travel industry.
Ed Chandler
Global B2B Travel Lead
Ed Chandler
Global B2B Travel Lead
As COVID-19 restrictions are relaxed around the world, the travel sector is working hard to recover, evolve and innovate, taking learnings from the pandemic. From enabling consumer choice to taking advantage of new regulations, embracing the possibilities of payment innovation can help close the gap – as we discuss below.
The sector could contribute up to $8.6 trillion to the global economy this year.
Few industries were harder hit by COVID-19 than travel. According to the International Air Transport Association (IATA), spending on air transport plummeted from $876 billion in 2019 to $384 billion in 2020 – and while data from the World Travel and Tourism Council predicts the sector as a whole could contribute up to $8.6 trillion to the global economy this year, this is still down on pre-pandemic levels by 6.4 percent.
Many factors integral to recovery – such as the continued easing of government restrictions – are outside of the sector’s direct control. But there are opportunities the industry can seize to bolster its own resilience and maximize revenue in the future. Payments is undoubtedly one such opportunity.
A complex landscape with potential for change
Payments in travel are far from straightforward for a variety of reasons:
Travel is a complex ecosystem in which consumers and corporations buy both directly and from intermediaries such as Online Travel Agents (OTAs)
- Multiple goods and services (e.g. a hotel, flights, and insurance) are often purchased simultaneously
- There are often long delays between time of payment and the date on which goods or services are received, meaning cancellations are common
- Bookings involve a high percentage of cross-border transactions
- Payments are often processed through industry-specific software and infrastructure, e.g. the IATA’s BSPs (Billing and Settlement Plans)
Despite this historical complexity, innovations in the wider world of payments have created many opportunities for the travel sector to process payments more efficiently. With a clear need to reduce costs, streamline processes and innovate to improve margins, the travel industry should now look to optimize its payments processes to further enable success.
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Travelers expect access to a range of flexible and secure payment options – including credit and debit cards, bank directs, and digital wallets
Using payments innovation to boost revenue and conversions
Long gone are the days when credit cards were the de-facto means of purchase in travel. Today, travelers expect access to a range of flexible and secure payment options – including credit and debit cards, bank directs, and digital wallets, to name but a few.
To maximize conversion rates, merchants across the sector must facilitate this choice, ensuring they have access to a payments gateway that supports a range of payment types. But they should also keep up with emerging trends. A recent Amadeus-sponsored survey identified that Buy Now Pay Later (BNPL) appears to impact the willingness to spend among many consumers; this is something Online Travel Agents (OTAs) could explore to encourage consumer spending.
In some instances, payments can even restore confidence in the act of travel itself. For example, a Skift and Oracle survey found that “contactless payment” is the third highest change (for 35% of consumers) that would make consumers feel more comfortable staying in a hotel. Reducing the number of physical touchpoints needed is just a small part of a wider packet of measures for hotels and other venues to embrace, but it’s an important one, nonetheless.
The future of travel payments
Gordon Mitchell, Enterprise Account Director at Modulr, discusses the future of travel payments after Covid with Andrea Caulfield-Smith, Director of Partnership Development and Management, Visa’s B2B Travel Team.
Take advantage of broader industry developments
As well as adapting to changing consumer preferences, merchants can benefit by responding to broader regulatory and industry changes. For instance, the Payment Services Directive 2 (PSD2) in Europe fosters “Open Banking”, which might offer new opportunities for large merchants to access data or initiate payments with the customer’s consent.
Elsewhere, changes to the IATA’s Resolution 890 and the set-up of the Transparency in Payments program provide a framework for settling new methods of payments used by travel agents, under the consent of airlines. This will aid transparency and control for airlines, while providing a resolution framework for agents who want to provide access to alternative transfer methods.
Travel ecosystem participants should also explore the innovative work being done by payment providers across the market, to ensure they’re taking full advantage of today’s innovative payments technology. For instance, new entrants using APIs to enable payment integration to optimize conversion rates in travel, or acquirers that are starting to offer pay-out services. There are also providers of BNPL products that are specifically focused on travel.
It’s a complex landscape with plenty of choice – but it’s well worth taking the time to consider, as the sector evolves.
Navigating complexity to gain resilience
The pandemic has challenged the travel industry – but it has also shone a light on opportunities for improved solutions, processes, and customer experiences. Payments innovation is just one piece of a broader puzzle, but it can have a tangible impact on revenues, market reach, and conversion rates – which could make a real difference for an industry still feeling the financial strain of the events of the last two years.
As the pace of change and complexity of payments increases, travel participants may find it useful to partner with trusted subject matter experts to understand how best to evolve travel payments capability. To support the industry with its recovery and continued growth throughout 2022, Visa has been investing to bring innovative payment capabilities to the market – watch this space for more details.
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- Economic Performance of the Airline Industry, IATA, 2021
- Global travel and tourism industry could grow to $8.6 trillion in 2022, City AM, 22 Feb 2022
- The payment trends shaping travel merchant strategies in 2022, Amadeus, 10 Dec 2021
- Survey: Consumers Eager to Travel with Certain Conditions for Hotels , Oracle, 7 July 2021
- Transparency in payments, IATA, 2022
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