Travel payments, part 1: Beyond credit cards and cashJune 3, 2019
One of the key drivers of travel’s evolution from a primarily offline, manually processed business to one increasingly coordinated online has been the transformation of the payments industry.
The development of the internet, followed by the birth of e-commerce - notably Amazon in 1994, eBay in 1995 and shortly thereafter online travel brands such as Travelocity and Expedia - spurred a need for digital payment options.
One of the first was PayPal, launched in 1999, and today there are hundreds of ways for consumers around the world to pay for products and services online.
According to the World Payments Report 2018 from Capgemini and BNP Paribas, global non-cash transaction volumes grew at 10.1% in 2016 to reach 482.6 billion. That rate is expected to accelerate through 2021 to 12.7% compound annual growth rate globally, with emerging markets growing at 21.6%.
Throughout June, we are exploring the topic of travel payments from a variety of angles.
We begin with a look at some of options within the growing inventory of alternative payments.
The term “alternative payments” is generally defined to include a variety of transaction models such as bank transfers (Trustly, Sofort, iDEAL), local card schemes (Cartes Bancaires, Girocard, RuPay), cryptocurrency (Bitcoin, Litecoin, Dash) and the most common and fastest-growing model – e-wallets (PayPal, Alipay, WeChat Pay, Google Pay, Apple Pay).
According to WorldPay’s 2018 Global Payments Report, “Online shopping demands equal measures of convenience and security. Digital wallets deliver on both counts. Mobile applications integrate the act of payment into daily lifestyles and routines, while preloaded credentials speeds online checkout. E-wallets do all of this safely with encryption, tokenization and device authentication providing extra layers of security.”
Worldpay predicts e-wallets will account for 47% of all e-commerce payments globally by 2022 - nearly three times the share it predicts for the second-most common payment method, credits cards (17%). Much of the growth in the next few years, it says, will come from continued adoption in China and “a surge of adoption in North America.”
And likely the bulk of the e-wallet transaction volume will flow through what Capgemini and BNP Paribas call “BigTechs” -Google, Amazon, Facebook, Apple, Alibaba and Tencent - which accounted for 71% of the global e-wallet market in 2016.
“These companies are leveraging their large-platform user base to make an impact in the payments space, focusing on providing seamless user experience, value-added features and making use of network effects,” the report says.
Application in travel
For travel merchants, one of the challenges to offering a variety of digital payment options is the technical work that must happen to integrate these offerings.
Payment processing companies such as UATP bridge these systems.
UATP provides a variety of payment solutions for thousands of airlines, travel agencies and rail carriers, and one of those is to connect those suppliers to nearly two dozen alternative payment brands around the globe.
In 2018, UATP’s alternative payment processing business posted a record-setting 11% growth compared to 2017, and president and CEO Ralph Kaiser says he expects 2019’s figures to be even higher.
“We basically set a new record every month - our transaction growth and our volume growth are both in double digits,” Kaiser says.
“We are very bullish on the marketplace. We are offering new and different programs and technology to our airline members to facilitate the acceptance of alternative brands. And we’re going to start putting out more products and services in that side of our business, because there seems to be demand for it in our airline membership base.”
Kaiser says initially merchants were attracted to options such as PayPal was because it was cheaper to take a booking through alternative platforms than through a traditional credit card. Now, he says, it’s primarily about offering whatever options will satisfy customers.
“So now it boils down to ‘can I sell more things by accepting an additional form of payment.’ That’s a big driver these days. And what we’re finding with airlines, to get more ticket sales and incremental revenue, you have to offer a method of payment that people have and want to use. In some markets there aren’t credit cards or a large part of the population can’t qualify for one.”
Consumers that do have a credit card may not have a credit limit that is high enough to use it for a travel purchase, or the card may not be enabled for cross-border transactions. And consumers in some regions simply prefer to pay with cash, so bank transfers are the preferred method.
Rehman Baig is vice president of payment partnerships at Yapstone, which provides payment services to marketplace-style businesses including travel brands such as Vrbo, Kigo and RentPath.
Baig says the value of alternative payment methods comes from providing simplicity and accessibility for consumers -particularly important in an industry such as travel where brands are trying to court customers from all over the world and where those customers are often paying in advance for accommodations and other aspects of their trip in foreign countries and currencies.
“These tend to be larger transactions that elicit more anxiety, more fear, more excitement for that matter - I want to do this and know for certain my bus is booked or my flight is confirmed,” Baig says.
“An alternative payment method can ease your way into that transaction. You can pay on your terms ... rather than how someone else chooses to pay. And you want the consumer to feel good about completing that transaction.”
For some consumers, point-of-sale financing is a type of alternative payment option that does more than make them “feel good” about booking a trip - it is enabling travel that would not otherwise be possible.
Founded in 2017, Uplift is one company that offers installment payments for travel.
Through partnerships with about 100 brands including Kayak, United Vacations, American Airlines and Universal Orlando Resort - and, since March, UATP - Uplift enables travelers to book instantly but pay for their trips over time through fixed payments each month.
Uplift CEO Brian Bath says the company is on track to exceed its goal of facilitating payments for one million customers in 2019.
He says those travelers are equally split into three segments: those with little disposable income and low credit scores who would not travel without the option of paying in installments, those with ample savings and high credit scores who use installments to take a more “luxury” trip and those in the middle for whom installments convince them to “stop shopping and pull the trigger,” says Barth.
Loans are priced according to risk, with interest rates as low as 4.35% and as high as 35.99%.
“What it does fundamentally is it changes the conversion rate of the purchase for leisure travelers,” Barth says.
“What we really are is a marketing company, using payments to drive marketing metrics.”
One of those metrics is ancillary sales: Barth says Uplift’s partners are making an average of $43 more per booking.
Today there are hundreds of alternative payment brands globally, but Kaiser says he expects to see consolidation in the future.
“You’ll see a convergence of the traditional and the alternative coming more toward the center and maybe taking different pieces until everyone has an offering for their specific customer base."