Why paytech is a strategic engine for travel industry growth
The world is ready to travel again. But in order to leverage the opportunity presented by this pent-up demand, the travel industry needs to resolve its long-standing issue of payment friction. Without greater processing efficiencies, and the flexibility to quickly adjust to changing trends, providers will be unable to meet the needs of the new, cautious travel customer.
The cautious traveller
While Covid-19 remains an active challenge in early 2022, people across the globe are already taking advantage of relaxed border restrictions and the resumption of travel services. A recent study by Destination Analysts found that 61.5% of Americans said travel would be a high budget priority for them in the first half of 2022. Similarly, data from The University of Queensland reveals that over half of Australians are planning to travel overseas now that international borders are open.
However, the way in which people travel, and the kinds of trips being planned, has changed in the wake of Covid-19. In a survey tracking airline passenger confidence, travellers from across the world expressed a desire to travel to destinations that were closer to home than those they visited prior to the pandemic. Around one-third of Australian, UK and US citizens said they would be travelling less frequently by air.
Another very clear customer trend is the demand for flexibility and protection should travel plans need to change. According to one insurance provider, 70% of Europeans and 64% of Americans indicated they would be more likely to purchase travel insurance as a result of the pandemic. Travellers are also willing to pay more for this flexibility, with customers of one booking service saying they were prepared to spend 15% more upfront on their tickets for flexible options.
A legacy of payment complexity
This new, cautious customer presents a challenge for the travel industry, which has a legacy of complex payments systems and working capital issues. The complexity exists largely because of the gap between bookings, payments and service redemption. Depending on whether the customer has booked with the travel provider direct or via an agent or third party, the provider may receive no payment at all until the service is claimed. In other situations, full payment is required from the customer upfront, weeks or months before they check in.
Thanks to Covid-19, customers now expect that in the event they cannot redeem the travel service when they originally planned (due to ill-health or external factors like a government lock-down), that the travel provider will offer a full refund or a credit which can be used for another date or service. This makes it extremely difficult for providers to operate without a working capital buffer, an imbalance further exacerbated after two years of forced shutdowns during which most travel businesses had significantly reduced income.
Other payment challenges faced by travel operators include the high cost of transactions (travel firms spend up to 3.2% of topline revenue on payments processing alone), time-consuming processes and reconciliations, credit card verification issues and foreign exchange controls. And of course, there are also pricing considerations, driven by seasonality and consumer demand. All this creates enormous friction for an industry that has been relatively slow to innovate.
Removing friction with paytech
Although many sectors languished over the past two years, fintechs experienced unprecedented growth, driven by digital commerce and consumer demand for simplicity and convenience. This has led to the development of a number of payment technology (paytech) solutions that can now be harnessed by the travel industry to streamline payments and drive operational efficiencies.
1. Reducing transaction costs
Many travel businesses (such as agents or tour operators) effectively function like a payments business, even if they do so with manual processing behind the scenes. They are pushing and pulling payments from different parties at specific times, storing that data to be reused and reconciling fees and taxes.
With paytech, travel businesses can utilise APIs to create multi-party workflows to process payments for vendors, ensuring they are paid automatically on-time. This paytech solution significantly reduces the cost of processing transactions, as well as removing the chance of manual error.
As real-time financial transactions are enabled through programs like Australia’s PayTo, travel businesses with the right paytech solution can quickly adapt and leverage instant account validation and notifications.
The right paytech partner can also ensure payment data is encrypted and securely stored for future use. Customers and vendors only need to authenticate once, enabling the travel provider to act as a “digital wallet”.
2. Reducing foreign exchange complexity
For travel operators working with international customers, the payment process is complicated by the foreign exchange market. Long transaction processing times put providers at risk of loss due to currency rate changes. For customers, credit cards often attract international currency fees, making such purchases less desirable.
But with paytech specifically designed for international payment disbursement, costs are reduced for providers and customers, who also receive a superior service experience.
3. Buy now, pay later
Customers the world over have embraced the convenience of buy now, pay later (BNPL) and it presents genuine opportunities for travel businesses. For operators who require a full payment upfront (airlines for example), BNPL could open up new markets as well as offset liquidity issues. For customers, BNPL represents a simpler, easier version of credit than a loan or credit card, which have been the traditional means of spreading the cost of a holiday over installments.
Research also shows that customers are likely to make higher value purchases if they have access to BNPL. In a recent survey, 68% of global travellers said BNPL would encourage them to spend more than usual on summer travel and 49% said they would be more likely to buy ancillary airline services (such as lounge access or upgrades) if BNPL was offered.
4. Flexible bookings
Perhaps the most valuable aspect of paytech for the travel industry is the ability to deliver flexible booking solutions at minimal cost to the business. Over the past two years, travellers whose plans have been cancelled due to border closures or ill-health have had to navigate through a complex web of call centres and online forms in order to receive a refund or travel credit.
With paytech automation, such a proposition becomes far simpler. Digital payment platforms allow refunds to be processed immediately, or for travel credits to be reallocated to another date or service at the click of a mouse, giving the customer more autonomy over their booking.
Further, with the advent of embedded finance, travel providers can now offer insurance to customers to guarantee the flexibility of their booking. For example, for a small additional fee, a customer could purchase a travel “guarantee”, that allows them to cancel or rebook up to 24 hours before their scheduled trip. This creates additional revenue for the business and a positive experience for the customer.
It is clear that in order for the travel industry to cater for the cautious customer, providers will need to invest in tech that not only removes friction and reduces cost, but also enables businesses to derive greater value through improved customer service. Paytech is the key to achieving this transformation.
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