Travel companies today are more dependent on moving money around the world than ever before. Minimizing the friction caused by foreign exchange fees, regulatory surcharges, and other international fees requires a secure and streamlined global payment solution.
Hotels, airlines, tour operators, and other travel companies distribute their inventories through a variety of partners and online travel agencies (OTAs) around the world. Making payments between countries with different currencies and laws can get quite complicated, not to mention expensive. Foreign exchange fees, currency fluctuations, service fees, operational fees, and other charges associated with these cross-border payments can significantly increase the cost of doing business.
With travel companies conducting more and more international business, the world is fast becoming one giant marketplace. As a result, cross-border transactions are expected to accelerate rapidly over the next two years. Juniper Research forecasts that the global business-to-business money transfer industry will see a $218 trillion valuation by 2022, up from $150 trillion in 2018. This aligns with the growth seen by Sabre, which saw a 50-percent increase in the volume of virtual card currencies being used through their Sabre Virtual Payments gateway over the last three years.
As travel brands try to grow their profitability and reduce the fees they are transferring to their customers, there’s a growing need for flexible solutions that simplify the way business-to-business payments work in the industry. SkiftX spoke to Sarah Ponti, director of product management for Sabre Virtual Payments, to understand how transaction fees associated with international payments can be minimized and how processes associated with business-to-business payments can be simplified.
SkiftX: What are some of the biggest costs associated with cross-border payments?
Ponti: Foreign exchange fees can add 2 to more than 3-percent of additional costs to cross-border payments. On top of that, some financial institutions charge a transaction fee for international payment processing. The labor-intensive operational cost of manually reconciling payment transactions can also add up.
In addition, economic pressures stemming from increased fuel costs, currency fluctuations, merchant payment processing costs, and competition from low-cost carriers are having an impact. Some airlines and hotels are increasing their surcharges to offset payment costs, and travel agencies can pass these costs along to the traveler or corporation booking the travel.
SkiftX: Beyond transaction fees, exchange rate fees, and operational costs, are there any other larger business costs associated with cross-border payments?
Ponti: Absolutely. In order to absorb the cost of cross-border payments, some online travel agencies and travel management companies have unfortunately felt the need to increase the cost of the bookings and/or their service fees. This impacts their ability to compete on price, which in turn,can have a negative effect on customer satisfaction and the ability to retain customers.
SkiftX: How do currency fluctuations — for example, the drop in the value of the Pound that followed the UK’s Brexit vote — impact post-booking surcharges for companies that book directly with suppliers?
Ponti: The volatility of the currency market can have an impact because the booking is made at a certain currency rate, but the amount that is charged can differ at the time of settlement. That can drive up the cost. Being able to lock in the currency at the time of booking and remove the risk of fluctuations is a pressing need for our customers.
SkiftX: How do virtual payments help minimize costs and drive other efficiencies for travel companies?
Ponti: With virtual payments, customers can choose the currency, card product and funding method, allowing them to select the payment provider that can reduce their cross-border payments the most. For travel buyers, in addition to helping them select an optimized payment method, virtual payments can be seamlessly integrated into their agency workflows.
Our Sabre Virtual Payments offering provides customers with access to a global network of over 40 different virtual payment providers. We collaborated with Visa to offer access to their superior card products and provide our customers with even more flexibility and options. Travel agencies can choose which card product best meets their needs. Our payment technology and Visa’s payment network provide increased security, global acceptance, and payment transparency in one seamless, integrated solution.
We are continuing to expand our network of virtual payment providers. When we talk about cross-border payments and managing different currencies, that choice and flexibility is so important.
Also, travel brands can connect to all of our virtual payment options through a single application programming interface (API) or point of connection, which reduces technology costs and helps consolidate and reconcile all the data from different transactions with different partners, simplifying payment processes significantly.
SkiftX: How do virtual payments address concerns about fraud?
Ponti: Virtual payments are configured with parameters that control usage and inherently reduce the risk of fraud. Unlike traditional credit cards, virtual cards generate a unique number for each transaction. In addition to that, usage of the card is restricted based on date, amount, and merchant parameters. These controls prevent the usage of a virtual card beyond what it was meant for, and our customers have the flexibility to control how tightly they wish to set these parameters.
SkiftX: What are some of the next big milestones on the horizon for virtual payments?
Ponti: Virtual payment usage is increasing in the corporate travel industry. According to recent research done by the Global Business Travel Association (GBTA), virtual payments are on the rise. That’s because travel companies continue to recognize the payment security benefits that virtual payments bring.
We’ve seen the same trends with Sabre Virtual Payments usage, with significant increases year over year. For example, in 2019 we saw an increase of over 100-percent in the number of virtual cards that have been generated.
We’re evolving our technology and expanding our network, which will provide customers with varied products on a truly global scale. We’re also holding workshops with our customers and our payment partners to generate new ideas so we can not only solve for customer needs but anticipate changes and play an evolutionary role in the future of global payments. All of this will continue to help our customers manage their cross-border costs and ultimately optimize their payment processes.
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