Business-to-business travel payments represent a $600 billion sector currently under-served by commercial banks but keenly explored by innovative niche providers ready to stake their claim.
Regulatory intervention designed to increase competition, together with new innovations and maturing technologies are creating the perfect storm for disruption – a window of opportunity for both banks and travel businesses to re-evaluate their business strategies.
So, why are banks not taking advantage of the commercial travel payments proposition? What has changed and what can they do to redress the balance? Here are some of the insights gained during a roundtable discussion with major European banks at CPI London.
What has, and is, holding commercial banks back?
- Lack of understanding of the Online Travel Agency (OTA) business within some departments
- Difficulty in translating the banks’ travel and expenses (T&E) capability – which has been their bread and butter – to suit the travel industry
- Potential nervousness around the credit requirements of travel businesses, and bank platforms typically not geared to support payments from cash balances which would mitigate the credit limitation
- The notion that banks are just not as “nimble or flexible as niche providers”
- A perception that new technology solutions need high investment that may not be justified by the size of the opportunity
- A view that the travel agency business is difficult to serve, fragmented and typified by smaller and regional players
What has changed?
A great deal. Take the implementation of PSD2, the scrapping of interchange fees and surcharging, protectionist industry practices such as IATA’s Transparency in Payments (TIP) initiative and the inevitable move towards low-cost payment options, to name a few.
While high interchange cards have proven a boon to OTAs, it has been less so for airlines, who have responded by pushing towards low-cost payment types.
What do banks need to do?
This moving of the chess board brings renewed opportunity (and urgency) for banks to help support equitable payments for buyers and suppliers alike. Bi-lateral or ecosystem agreements look likely to emerge, presenting another area which banks and their partners can influence and illustrate leadership.
At $600 billion, B2B travel payments is an opportunity banks can ill afford to overlook. In order to succeed, they need to offer more flexible solutions which incorporate cash-balance payments in tandem with the credit offerings typically offered.
This need not be a daunting prospect. Innovative, white labelled solutions are available that are easy to integrate with existing systems, bring substantial efficiencies and offer value from every transaction.