As the battle for digital wallet share in online commerce heats up, payments are rapidly emerging as an essential component in a winning travel sales strategy where customer convenience trumps short-term cost-savings.

In the travel industry, arguably the earliest industry adopter of e-commerce as a primary sales channel nearly twenty years ago, explosive growth in the number of online booking options – from hotels to flights to alternative accommodations and car rental sites – means that a fast, convenient check-out process is essential for a swift, successful sale.
 
The competitive landscape has changed beyond recognition since the dotcom boom. Where the US and Europe, dominated the early days of e-commerce, today Asia and markets in the rest of the world account for 84% of all online sales. And the market is growing quickly. E-commerce platform provider Shopify estimates that e-commerce sales across all industries will nearly triple between 2014 and 2021 to be worth $4.5 trillion[1]. In travel, nearly half of all consumers globally have booked travel products or services online – rising to nearly 70% among consumers in Spain[2].
 
Customer value, not cost
In the face of so much opportunity, and competition, a strategy that prioritises consumer convenience over cost-savings, and the long-term value of a customer or supplier relationship over a one-off transaction, is essential for success in travel’s new digitally-dominated age.
 
It’s not hard to see why. Cart abandonment rates – the proportion of transactions that are not completed – for online purchases, are stuck at around 70%[3], and a global study by Ipsos and PayPal showed that security, convenience and payment acceptance by merchants were the top three factors for consumers’ choice of payment methods for online, cross border purchases[4].
 
So far however, the track record of travel providers is patchy. Disruptive forces like Airbnb, Uber and some large OTAs have proven the potential of a digital customer-first strategy that some travel brands have been quick to partner with – Airbnb’s tie-ups with global travel networks to grow its business travel footprint, and Marriott’s tie-up with Expedia for its Vacations by Marriott travel packages service, are examples. But this kind of cooperation is still an exception.
 
As Mike Carlo, board member of hotel industry body, HEDNA remarks, differing regional standards, particularly in payments still get in the way of a seamless booking experience: “Payments is becoming an area where the distribution people are starting to take more notice. This was prompted by a discussion around outbound Chinese guests – where a hotel brands were able to accommodate Chinese guests in their hotels in China but when they left China they couldn’t pay with UnionPay so the group was pushing them to book with a Chinese OTA to pay for their hotel.”
 
My way… or (don’t) fly away
More common is an attempt to dictate the terms of transactions and sales channels in a way that was only previously possible in pre-internet days. The current trend among many travel brands, and the airline industry, to move customers to direct booking and payment – whether to reduce costs, or reliance on OTAs to generate sales, is one example.
 
While this might be good for individual businesses, it makes the buying process more complicated, and slower, for consumers. IATA’s announcement that it’s working with Deutsche Bank to develop a direct-to-bank account payments mechanism might appear a welcome embrace of innovation to help drive down prices to the consumer, but the challenge with payments innovation is that it takes a tide that lifts all boats to succeed.
 
“Airlines may regard agencies as a necessary (or unnecessary) evil,” says Andrew Auden, travel product director at Ixaris Technologies, a payment solutions provider, “but they are delivering value to the end customer, so there’s benefit in airlines supporting their clients’ preferred payment, particularly when providers can give agents access to cards that operate at the same cost as consumer cards.”
 
One-category payments, such as a mechanism serving only the airlines in this case, run the risk of adding a new layer, and lengthening, the buying decision, with customers in some markets more readily able, or willing, to try a new method in return for a slightly lower cost ticket, while others are frozen out. “Airlines have already made the investment in card acceptance and this core to their offer to consumers. Forcing agents to use different payment methods from consumers (and corporate buyers) creates more complexity,” remarks Mr Auden.
 
Many happy returns?
In an industry characterised by a lack of loyalty and widely exposed to fraud this sounds counter-productive. A review of American Airlines’ business in 2015 showed half of the company’s revenue came from the 87% of customers who only flew with the company once in that year[5].
 
Payments from traditional means like cards and virtual cards might not eliminate transaction costs altogether but they have a strong track record in stopping fraud – currently a problem valued at between $1 and $5 billion (depending on whose measures you go by)[6]. A cost that is currently largely borne by the airlines. They also provide overlooked but often highly valuable benefits – such as guaranteeing payment to the airline in the event of agency failure.
 
 
As Paul Alfen, global head of airlines and travel at Ingenico remarks, “You have to ask what’s in it for the consumer? Airlines might offer loyalty points to people that use their payment method but most consumers are not points or loyalty members. There’s also no brand recognition – why would they abandon their preferred method of payment?”
 
Your flexible friends
A rigid approach to travel distribution also ignores the value that strong relationships with ecosystem partners and channels can bring – especially where the same or similar destinations or services are served by multiple providers. If payment reliability is a growing problem, a flexible strategy that rewards or incentivises OTA or agency customers that pay promptly and create the most value, will deliver greater benefits, now and over the longer-term, than a margin point cost saving.
 
In the digital world, co-opetition is already king. At least in some similarly cut-throat industries. Clothing e-tailer Asos’ partnership with Swedish fintech Klarna to offer a pay-later option for purchases is a successful example of how payment innovation that puts convenience and the consumer first can work in practice, at the same time as helping contribute to a sales uplift.
 
In margin sensitive businesses like travel, or fast-fashion, cost reduction will never be a choice. Nevertheless, a strategy of flexibility, and co-operation, with partners and the wider travel ecosystem is more likely to deliver the desired results – by making the buying and payment process faster and more efficient – at the same time as improving the buying experience for the end customer. An approach that has a better chance at generating repeat customers than a strategy that adds another bump in an already bumpy e-commerce sales cycle.
  
End note
This article is part of the Travel Megatrends 2020 research series – a research initiative exploring the crossover between travel, technology and payments that will report in September 2018. To take part in the research and reserve a free copy of the insight report, please click the link below to complete a short online survey.


[1] The Global Enterprise Guide to Global Ecommerce, Shopify, September 2017
[2] Nielsen Global Connected Commerce Survey, 2016
[3] Online Shopping Card Abandonment 2006-2017, Statista 2018
 
[4] Payment method preferences among online cross-border shoppers, Ipsos PayPal Insights, 2016
[5] “5 things American Airlines Group Inc wants you to know” Motley Fool, October 2015
[6] IATA, January 2016 and Amadeus, August 2015

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