Hotels and airlines now distribute their inventory through countless partners. As a result, there’s a growing need to provide payment flexibility while simplifying how business-to-business payments work in the travel industry.
Each day across the internet, online travel agencies (OTAs) and travel aggregators are making various payments in different currencies to thousands of hotels, airlines, tour operators, cruises, and attractions around the world. These payments are settled across diverse channels, and in many cases, there may be intermediaries like global distribution systems (GDSs) involved. Travel buyers may face additional fees, such as Foreign Exchange (FX) charges or cross-border costs, while making these payments, which directly impact their bottom line and increase the cost of doing business. In other words, the business-to-business payments landscape in the travel industry is extremely complex and can get very expensive.
“Considering the complexity in payment regulation and variable local requirements, no single issuer offers single optimized payment capabilities globally,” said Robin Boudsocq, head of Sabre Virtual Payments. “Banking and payment regulations differ between markets, and large travel buyers, such as OTAs, often need to work with a number of different payment providers to address their specific needs.” But no matter the size of the travel company, however small or large, a buyer can only work directly with a finite number of payment providers, as the operational costs increase with the number of providers. “So when a buyer tries to settle payments through a payment provider that doesn’t have the right local footprint, those aforementioned fees really begin to go up,” said Boudsocq.
Given the above challenges, how can large travel buyers and aggregators make payments to their partners and suppliers efficiently and securely, while maximizing the financial outcome of each transaction?
The Sabre Virtual Payments solution enables travel buyers to select the most optimized payment method from a wide range of solutions while seamlessly integrating these payments into their agency workflows. “Our expertise lies in understanding the travel industry and providing options and integrated technology solutions that address our customers’ nuanced needs,” Boudsocq said. “When we built Sabre Virtual Payments, we wanted to leverage the same expertise that we have as a GDS. No matter what a travel buyer’s or an aggregator’s payment flows are, we want to provide them with enough options so that they are able to transact in the most profitable way possible.”
Sabre recently collaborated with Visa to increase the options it provides its virtual payment customers. Travel buyers will now have access to virtual Visa commercial cards through the Sabre Virtual Payments solution. “This will not only enable streamlining the cash flow and more transparency than paper-based processes but will also be key to accelerating business-to-business virtual payments’ adoption in the travel industry,” Boudsocq said. This relationship represents a tremendous opportunity to increase the adoption of B2B virtual payments in the travel industry.
Today, Sabre has aggregated services from over 40 different virtual card providers. Take the instance of a European OTA paying a hotel in the U.S.: Once the booking site is connected to Sabre Virtual Payments through a single set of Application Programming Interfaces (APIs), it can look through the different card products available to them and find the best way to make a payment to the U.S.-based lodging provider based on the locally available card products and local regulation.
The OTA can use its own decision engine or the recommendation algorithm from Sabre, which takes 20 different factors — like percentage of the rebate, credit offered, and acceptance rate — into account before selecting the best card product for transactions on that channel. At that point, settlement can occur using an extremely secure virtual card.
“You will often hear of product recommendations being made based on the basis of percent of rebate offered alone,” Boudsocq said. “But if a virtual card offers a 2 percent rebate and then charges 1.5 percent in foreign transaction fees, then the real rebate being offered is only 0.5 percent. Now compare that to a different virtual card that offers 1.5 percent in rebate but charges only 0.5 percent in transaction fees. The actual rebate, in this case, is 1 percent. We try to find the payment solution that offers the best trade-off between fees and rebates.”
In fact, by selecting the right card product, from the right bank, and in the right currency, OTAs can “potentially save up to 32 percent for every completed payment,” Boudsocq added.
Of course, payment settlement is a two-sided affair and working with only one side of the relationship is not enough for success. According to Boudsocq, educating suppliers and merchant banks about the options and products out there is key. “A very large OTA came to us saying that most of their business comes from this one low-cost airline that was levying a high surcharge on all virtual card payments,” Boudsocq said.
For this travel buyer, being able to pay with a virtual card was very important because it gave them protection against supplier default. Virtual cards provide buyers with chargeback protection so in case the airline stopped service, the buyer can recover its funds.
“When we spoke to the airline, the airline told us that they found virtual cards to be very expensive, considering the current pressure on margins within the airline industry. It was, therefore, challenging to accept such cards,” Boudsocq said. “We went back to the airline and demonstrated to them that not all virtual cards are created equal and that they come at very different price points. We were ultimately able to find a virtual card that the airline was willing to accept without the OTA having to pay a surcharge.” In the end, both sides came out ahead thanks to Sabre’s intervention.
Customers work with Sabre Virtual Payments and use its solution to get a single view of all their channels and payment options. “At the end of the day, we aggregate services,” Boudsocq said. “Each time we add a new component to our service, it is automatically distributed to all our agencies around the world. So to create something that is robust and agile, our technology evolves all the time, as does our network.”