Cards still dominate, but corporate travel is discovering innovative ways to pay
By Kathryn B. Creedy
Alternative payment methods, or APMs, already cover 51 percent of all travel transactions driving airlines and travel management companies to adopt the more than 300 APMs already being used today to meet consumer demand for seamless payment solutions.
“New forms of payment remove consumer friction,” says Uplift CEO and cofounder Brian Barth, whose company enables installment payments for travel services. “Payments are becoming less about the mechanics of moving money and more about creating a great consumer experience.”
Amadeus head of merchant services Jean-Christophe Lacour agrees. “Consumers are driving significant change,” he notes, adding Amadeus is about to publish The Travel Payments Guide, providing merchants with data on the most popular methods in 40 of the largest global markets.
“Although cards remain dominant across most major markets, we are seeing a rapid rise in e-wallets and bank transfers across the world,” Lacour explains. “The analysis shows that, on a global basis, alternative payment methods have now surpassed cards and cash combined, accounting for more than half of all travel commerce. This trend is most evident in China where e-wallets are now the most popular payment method, accounting for 49 percent of the country’s $155 billion in digital travel spend.”
Even in the US payments are changing, says Lacour. “Although cards remain the preferred method with 57 percent share this is 4 percent lower than a year previously, with alternative methods having grown by the same amount,” he says.
“In many developed markets we are seeing APMs grow their share of all payments by 5 to 10 percent per annum,” he notes. “This doesn’t mean the end of cards. Indeed, many of the e-wallets rely on the underlying card network infrastructure. However, it does mean travel merchants need to respond to changing preferences.”
A recent report entitled New Way to Pay from Swedish fintech company the Trustly Group quoted global payment processor Worldpay as predicting bank transfers will become the second most popular payment method globally by 2021.
“Even for online purchases the reign of credit and debit card may have seen its heyday,” the report states. “Today, e-wallets and instant bank transfers are seeing the fastest growth in operation around the world, such as direct carrier billing, mobile payments, direct debits, e-wallets, PayPal. Apple Pay, WeChat Pay and AliPay.”
The prediction was echoed by numerous speakers at the recent UATP conference in Miami, who overwhelmingly advised the travel sector to move payments from an afterthought to making these processes a key strategy for success by breaking down silos between cost and revenue professionals.
“Some global carriers have 20 to 30 websites, but credit cards are not going to work in Africa,” UATP CEO Ralph Kaiser explains. “So, you have to understand the markets. UATP has already done that background research so we can advise airlines on the best form of payment to use in each market. UATP can also help airlines accept APMs just as they work with us on credit cards because our technology already talks to the payment brands. One of the barriers is the work necessary for legacy systems to accept APMs.”
Travel Program Impact Travel managers, like their airline counterparts, must respond to changing traveler preferences, and that means accepting the payment methods their travelers are demanding, especially in destinations where credit cards do not have the wide acceptance they do in the US.
“The impact of alternative payments isn’t confined to accepting payments, either,” explains Lacour. “It’s impacting how TMCs pay suppliers as well. More specifically for TMCs, Amadeus has been focused on helping them pay suppliers more efficiently with our Amadeus B2B Wallet solution, enabling payments with a variety of single-use virtual cards. This approach provides a one-stop shop to centralize travel spend, enhancing the traveler experience whilst ensuring policy compliance, control and automation.”
UATP speakers also noted these single-use cards can be used for passenger compensation in the event of a delay or cancellation and loaded to enable food and hotel purchases. They would be time restricted and any funds left over would be returned to the carrier.
Lecour explains how this method improves compliance. “A virtual card is created and used during the reservation process automatically sending payment instructions and any restrictions to the travel supplier. Virtual cards can, therefore, be set up that work only within agreed corporate travel policies with preferred suppliers and for specific products.”
Reining in Costs Trustly’s New Payments report outlined the benefits for the travel and aviation sectors including: • Reduced processing costs, particularly pertinent given the potentially high average transaction values common with business class flights and family holidays; • Immediate settlement that removes cash flow lag and uncertainty; • Improved operational efficiency, making cross-border transactions simpler and reducing the cost and complexity, while increasing acceptance of managing payments in multiple markets and currencies; • Incremental reach among consumers without access to credit or debit cards, or a preference not to use them; • The elimination of chargebacks and so-called ‘friendly-fraud,’ and the associated cost and resource burdens required to administer them.
Trustly, which enables payment directly from bank accounts, helps travel merchants lower distribution costs, eliminates fraud loss and minimizes financial exposure.
Travel Is a Latecomer Despite the benefits, airlines are only now turning their attention to payments, a decade after it was first raised by a Northwest revenue manager who advised the industry to stop worrying about GDS fees and focus on credit card fees, according to Kaiser. The revenue manager says transaction fees were twice the booking fees and that was 10 years ago.
“Transaction fees pale in comparison to booking fees,” says Pascal Burg, director of travel practice at Edgar Dunn and Co., speaking at the UATP conference. “Globally, transaction fees are $80 billion a year so APMs are a significant way to reduce costs. Today, only 22 percent of airlines are looking at payments to reduce costs and increase revenues.”
Considering all the costs outside their control, airlines should be laser focused on transaction fees, Kaiser maintains. “Payments are the last frontier and it is now starting to get some traction. Our goal is to put it on the radar,” he adds.
“The travel sector needs to offer a mix of payments, based on market demand,” says Kaiser. “What they would offer in the US would be completely different from the payment method in Latin America or Asia. They must look at the most popular payment method for each market they serve and accommodate it.”
On the consumer side, Kaiser notes alternative payment methods are opening wider opportunities to meet travel demand. “There are now new forms of payment including Uplift, which offers immediate financing, just as a consumer would buy a refrigerator, to pay for travel services in installments versus all at once on a credit card with high interest rates.”
Consumer demand is changing the playing field in corporate travel payments as well. “The commercial arguments for doing so speak for themselves – both in terms of cost saving and operational efficiencies, as well as positioning an organization for growth,” says Trustly UK general manager and director of travel Mike Parkinson in the New Payments report. “Consumers are demanding more choice, more speed, more security and more convenience.”
Breaches of Trust If there are hundreds of new APMs, securing the transaction is also benefiting from new technology. With data breaches, including those making headlines at several large travel companies, efforts are escalating to deter theft and fraud, and APMs have already built in protections for travel companies.
“Airlines are historically combating fraud either through a third-party-rules-based manual review process or they hire their own fraud team and build their solutions in-house,” according to Forter senior sales director Sondra Feinberg. “The problem is travel companies are being reactive to fraud issues instead of becoming proactive in fighting the fraud. When building an in-house system, they are unable to tap into a global network to identify fraudsters before they impact that airline. The airline can only see fraud happening to their own site. That’s what drove us to create Forter.”
Forter is a fraud prevention software solution that provides an automated proactive approach to payment acceptance decisions. “We recognize 2.1 billion devices today,” she says, adding the technology can analyze a user down to their unique keystroke. “We can tell through historical usage of that device and the typical characteristics on how that device is handled. If we detect an anomaly, we look for additional data points for that transaction.”Forter also starts its work the minute a purchaser enters a web or mobile site. “Forter starts ‘decisioning’ them,” she continues. “We don’t wait until the point of transaction. We determine first if we have seen this person before and then determine whether we trust them. If they are a known purchaser, we give them approval in 760 milliseconds.”
Feinberg explains its importance to travel management as travelers frequently lose or misplace their payment methods.
“We give companies a more granular look at fraud,” she says. “Additionally, our technology can help business travel executives prevent account takeover and loyalty-point theft. Thanks to numerous data breaches, e-mail addresses and passwords along with birthdates and social security numbers are floating in cyberspace, making it easier for a cybercriminals to log in to frequent flier sites and skim off points or even make purchases with those points either to redeem for travel or in retail marketplaces airlines or hotels may be a part of.”
It is a brave new world in the land of payments. Clearly, the travel sector is behind the power curve when it comes to APMs. However, companies such as UATP, Amadeus and others have already incorporated this new frontier into their developments, making the path much easier for airlines, TMCs and corporate travel programs looking to reduce costs and minimize risk.