The travel sector's slo-mo refund process has infuriated everyone. So the crisis is upending the dull business of how money is sent among travel companies, resellers, tech vendors, and financial institutions.
The coronavirus pandemic is highlighting the deep fault lines in the travel sector’s technology and workflows. It has especially shaken up how hotels, airlines, agencies, and vendors handle payments.
“The challenges airlines and agencies have faced in issuing refunds for canceled flights has especially called out significant problems in payments tech,” said Kristian Gjerding, CEO of CellPoint Digital, which offers payment services.
Responding to the challenge, obscure tech companies aim to upgrade the ways travel suppliers connect with banks, next-generation financial services like Apple Pay and Alipay, vendors of operational software, intermediaries, aggregators, and travel buyers.
A handful of industry players released in May new technical standards for how hotels, vendors, and financial institutions send money. The goal is to make things more modern and efficient. Mastercard is sponsoring an “early adopters program” for new technical standards created by the non-profit Hospitality Technology Next Generation (HTNG). It has roped in Melià Hotels and online travel agency Logitravel so far.
New Payments Tech Can Catch Otherwise Lost Money
Underpinning a lot of the payment tech innovation is the concept of virtual cards. While corporate spending on virtual cards will drop 4 percent year-over-year in 2020 due to corporate travel’s collapse, the number of transactions will still rise 11 percent year-over-year, forecasts Jupiter Research.
During the pandemic-related crisis, virtual cards protect the travel supplier against default. If a travel agency were to go bankrupt, virtual payments ensure that an airline or hotel would get their money regardless and not need to join a queue with the agency’s administrator and hope to get paid someday.
“If the agency is going out of business, there’s more security of getting paid for the hotel via virtual payments,” said Chiara Quaia, vice president B2B travel, enterprise partnerships for Mastercard.
“Often a hotel, for example, will need to wait until a bank transfer from a travel agency arrives to get paid,” she said. “But with a virtual card, once the buyer authorizes the card, the money will flow to the hotel.”
This issue matters because many credit insurance companies used to backstop travel transactions. But mass cancellations due to the pandemic have scared them off.
“Some hoteliers were sending bookings to resellers and expecting payment at the time of check-in or check out while relying on credit insurance companies to guarantee that if an agency went out of business before the guest arrived, the hotel would still get paid,” said Voxel Chairman Xavier Ginesta. “That’s changed because credit lines have evaporated. Now hotels want to ensure they can get paid in advance and that their tech and their contracts assure that in most cases.”
Cheaper tech has made virtual cards more appealing. For example, Mastercard will debut on July 17, five new lower pricing tiers for its wholesale travel program, a service for travel intermediaries and travel suppliers via Mastercard’s virtual account numbers.
“Before Covid-19, some airlines had been pushing back against virtual card payments from agencies on cost grounds, which is partly why we developed this,” said Bart Tompkins, managing director, payments at Amadeus
Virtual cards can provide greater payment transparency that can also cut down on waste.
American Express Global Business Travel (GBT), the world’s biggest travel management company by transaction volume, launched in the UK on July 2, Neo1, a spending management platform to help small-to-medium-sized businesses see and control cashflow.
Neo1 lets finance teams manage categories like office supplies, utilities, and travel bookings in a single dashboard. Neo1 syncs with data feeds for major credit cards, importing transaction data for processing and reconciliation. It integrates with popular finance systems to speed up payments. The tool can split a transaction across many spending categories and departments, too.
A more limited spending management tool was launched by TripActions earlier this year.
Several trends are driving the reform of today’s patchwork of payment tech tools.
New digital technology is one. Until now, workers often have to plug gaps in what computer systems can do on their own by entering data. This manual work can introduce errors and slow things down — hassles that new automated tools can smooth away.
Syncing up all steps in the process, called payments orchestration, is a buzzy concept. Many travel companies have handled payments transaction processing as one process and clearing, settlement, and reconciliation as a separate process. Bringing the whole payment process together can reduce errors and add efficiency.
“We know [airline] projects to deploy Apple Pay that can take a year,” Gjerding said. “Apple Pay shouldn’t take a year to deploy. That should be really fast. It’s the result of complex legacy tech, non-integrated processes, and a lack of clarity on which teams are accountable for getting things done speaking generically.”
Cheaper tech is trickling down to even the smallest players, too.
“If you’re the guy with two kayaks in Hawaii offering tours or classes, and you don’t have a ticketing system but want to sell your tours online, you can get an affordable and simple tech fix now,” said Melanie Meador, CEO of Redeam, a tech vendor serving operators of activities, experiences, and theme parks.
“The consumer’s no longer told to print out a paper voucher,” she said. “They instead get a gate-readable ticket on their mobile device, whether its a bar code or a QR code, and it syncs with real-time inventory to avoid double-bookings.”
Rising demand for faster payments may be another driver of innovation.
“Some newer payment methods mean airlines can immediately receive funds and we could see carriers encouraging travelers to pay using those methods,” Tompkins said, referring to methods such as bank transfer payments and “instant payments” via services such as Trustly, Klarna and sometimes taking advantage of the recent European initiative called the Single Europe Payments Area. “In an environment where [bank] acquirers are increasingly risk-averse, it’s likely it will take longer for airlines to actually receive funds.”
An example of travel industry interest in instant payments is the June integration of TravelgateX, a connection hub with clients like Rakuten, Expedia, and CTrip, with PayParc, a startup using e-wallets managed via advanced data feeds.
The effort moves funds right away based on booking data. That’s different than the standard today, which is to wait for bookings to happen first, with a separate step coming afterward.
New “instant” payment systems cut down on common types of fraud, too.
“The buyer can’t say ‘I didn’t pay for that’ and request a chargeback because everything’s authorized and validated upfront with a QR code or a PIN [personal identification number],” said Eric Liebman, global head of the travel vertical at Ingenico ePayments, a payments tech vendor. “That’s great safety for the travel merchant, and it cuts down on costly back-end processes.”
But the travel industry needs to change the ways its systems handle data to take full advantage of these more secure forms of payment. The Hotel Electronic Distribution Network Association, or HEDNA, in a working group led by tech vendor Voxel Group, has created the Open Payment Alliance for that purpose.
Some investors spot an opportunity in travel payments tech. One of the companies helping with automation, Portland, Maine-based Wex, received a $90 million equity investment and $310 million convertible notes investment from private equity firm Warburg Pincus in June.
2c2p recently received a massive funding round, which will support its payments tech used by agencies like Agoda and Traveloka and airlines like Malaysia Airlines and Thai Airways. Revenio Capital led in May a $42 million investment round in Fly Now Pay Later, a company offering travel installment payments.
Seeking New Pay Pals
Hurdles to change are high. Today’s travel payments system has many entrenched interests, aging software, and players starved of revenue due to the pandemic.
Yet incentives for change are rising. Apple, Google, Alibaba, Tencent, and Paytm continue to push consumers into using forms of payment that differ from traditional credit cards. Facebook in May introduced a Shops tool that gives businesses checkouts to power digital storefronts, and the company is continuing to build a payment processing service despite the hiccups with its proposed Libra digital wallet.
The rise of mobile money forms part of this longer-term reality. New ways of storing and spending money have blossomed. Yet the travel industry has fallen behind in accepting them.
Today many consumers in emerging markets don’t use credit cards. They instead pay for purchases with services like WeChat Pay in China and Paytm in India. Already today two out of three online payments for retail and other spending use newer forms of payment like Apple Pay, UnionPay, and bank transfers via other mobile wallets, rather than traditional credit and debit cards, said airline-owned payment network UATP (Universal Air Travel Plan).
Yet many travel providers still can’t accept these newer forms of payment or don’t display relevant ones to buyers.
“If a traveler is shopping in Europe and a travel website or app displays Alipay but not PayPal then it’s immediately much harder for the traveler to make a payment,” Tompkins of Amadeus said. “Subject to local laws, this can easily be improved by displaying the payment method the traveler is most likely to use based on their geography and previous payment preferences when making bookings.”
“From a consumer’s perspective, what matters is the ease of transacting without needing to go fetch your credit card our and type in 16 numbers on a small mobile device,” said Meador of Redeam. “Services like Apple Pay, Google Pay, PayPal, Venmo, Alipay, etc., have created an expectation of speed. The travel sector needs to keep pace.”
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Photo credit: Apple Pay is one of the newer forms of payment that travel companies need to accommodate. The travel sector's slo-mo refund process during the pandemic has upended the dull business of how money is sent and received. Apple