How efficiencies and innovation can transform B2B payments for hotel brands
The global hotel sector is projected to grow by 5-6% in 2018, reaching a record-breaking $170 billion in gross bookings with occupancy hovering around 66% – a glowing picture on the face of it. While the outlook is positive, competition from private accommodation rentals and the proliferation of apps that allow consumers to compare hotel and private accommodation offers are exerting pressure on the hotel dollar.
Payments – the hidden thread linking travel agencies, hotels and customers – are beset by inefficiencies and friction. It can take more than three separate transactions before a payment for a hotel booking finally reaches the hotel, with each transaction cutting a little more off the hotel’s margin.
In the enduring tug-of-war between hotels and online intermediaries, there is currently an imbalance between who carries the cost of payments (hotels), with control residing primarily with the payer (travel agents).
Unfortunately for the hotel industry, this not likely to shift anytime soon. OTA lodging revenue in 2016 grew at nearly five times the rate of the US hotel market and OTA hotel bookings are now exceeding total hotel website bookings, according to 2018 Travel and Hospitality Outlook, a report published by Deloitte.
The key challenges for the hotel sector
In an increasingly cut-throat industry, the hotel sector needs to pay careful attention to relationships, systems and processes and, especially, the increased value hotels can capture from payment transactions:
- Cost and control: Although hotels are carrying the cost of payment acceptance – particularly card payments where costs are unpredictable, variable and rising – they receive little to no value from incentives given to the travel agent making the bookings which are controlled by their payment provider and not the hotel.
- Payment speed: In contrast to the airline model, where payment is committed (even if not actually paid) at the point of booking, the hotel industry has traditionally relied on a post-pay approach with accounts settled on departure. Virtual card numbers (VCN) which have been a boon for OTAs using them to pay airlines – have not gained as much traction in the hotel sector due in part to varying payment timings adding to the complexity.
- Legacy: Hotel back office systems (for example payment, reservations and property management) are typically disconnected, complex and difficult to integrate – often leading to confusion, for example when front-desk staff are presented with a virtual card number.
- Standards: There is still a lack of standards around how and when payments are made, which complicates payment reconciliation for both OTAs and hotels.
- Security: Processes are vulnerable to fraud in an industry where it is still standard practice to send card details by fax or email.
The bottom line is that we have a system that is still too complex and prone to problems, serving neither hotels nor travel agents very well.
Ready for a digital future: a digital imperative
So, what if bookings are growing? Well, firstly the current system puts the efficiencies and cost benefits of distribution out of reach for most hotels. Yesterday’s payment infrastructure was not designed for real-time, digital payment processing, or for API integration or modern fraud detection tools. As the digital age takes hold, replacing outdated payments infrastructure will be critical for future survival.
How do we see the ideal solution?
Initiatives such as the Open Payments Alliance (OPA) proposed by the hotel distribution association Hotel Electronic Distribution Network Association (HEDNA) are already galvanising the industry through a model that champions collaboration, flexibility, adaptability to the digital future and is payment-method agnostic.
At Ixaris we also believe there’s an opportunity for an equitable solution where payments and incentives are managed effectively and efficiently, offering value to all parties involved, whether hotels or agencies. But this efficient payments proposition should be enhanced by optional value-added services on top. This enables us to “to extract value only from where we add value” and it’s a central part of our Travel Payments solution.