The friction-heavy processes of the travel industry make it a prime target for FinTech innovation. By nature, travel is a sector dependent on the movement of data and money across borders, so players in this field have their fingers on the pulse of global payments innovation.
There are two driving factors behind the travel industry's embrace of virtual B2B payments, according to Apiso Co-founder Andrew Sims. The first is the overall evolution of the B2B payments space, which has addressed adoption challenges for businesses looking to embrace digital payment tools like virtual cards.
The second, and more industry-specific, trend is the rise of the online travel agency.
"[These] differ from traditional agencies and corporate travel management companies because their receivables cycle is shorter, as the majority of incoming customer payments are settled by card," he explained, adding that online travel agencies are digital-first, allowing for more flexible adoption of technologies like API integrations and the embrace of virtual cloud networks (VCNs), through which these businesses issue travel tickets and manage bookings.
In the Middle East, where Apiso recently launched a partnership with travel technology firm Sabre, both of these trends are beginning to converge: the travel sector in this market is digitizing and ushering in online travel agencies, while virtual payment technologies are beginning to take hold.
But it has not been an easy journey, Sims noted – particularly as payments technology companies have grappled with the region's unique challenges of regulation and cross-border payments friction.
"The regional market is complex from a regulatory licensing, FX and cash management perspective, and this makes it more difficult for international virtual payments companies to provide services suitable for intra-regional payments using domestic currencies, and whilst there are some banks providing virtual payments, the technology and supporting services they offer are rudimentary," he said.
The Cross-Border Challenge
The global nature of the travel sector means that for digital payment technologies to be embraced by industry players, they must be agile enough to facilitate a high volume of cross-border B2B transactions.
As Sims pointed out, the regional challenges of global corporate payments are similar to those seen in other parts of the world: the need for companies to manage fund collections and then consolidate and reconcile that information when those transactions occur in different currencies.
In the Middle East, he said, the "vast majority" of B2B payments are settled via SWIFT bank transfer, and the mechanisms through which companies can make these payments always come with added fees or non-financial costs, such as the burden of manual reconciliation.
What makes virtual card payments well-suited to tackling those cross-border payment challenges is their ability to integrate deeply into businesses’ existing back-office systems via APIs. And thanks to the API-friendly nature of the online travel agency, virtual cards can be a good fit for this sector, said Sims.
"Immediacy of authorization, fast settlement and the protection offered to our customer and supplier through the payment scheme are all major factors" of virtual card adoption, he said, "especially in the travel segment, where a booking or reservation is made for services that will be fulfilled at a future date.”
API integration is "an incredibly important factor" in how virtual cards can benefit global B2B travel payments and cross-border B2B payments in general, Sims added, noting that the benefits of virtual cards "are often overlooked when businesses first review the possibility of migrating to virtual payments."
For the travel industry, API integration means virtual payments can occur seamlessly within the broader corporate travel booking and management process, while support for automation means online travel agencies can expand their capacity without draining resources.
Further, integrated virtual card payments mean a seamless process of booking to settlement, which makes for an "exception-based reconciliation process" and more efficient use of resources, Sims said.
It's perhaps unsurprising, then, that virtual card payments are on the rise in the corporate travel booking industry. Last year, researchers at the Global Business Travel Association and AirPlus International found that mobile and virtual payments are on the rise in the industry, particularly as industry players recognize the security benefits of single-use virtual cards.
With the Middle East's digital B2B payments market beginning to pick up steam – and with online travel agencies also gaining traction – the market is ripe for virtual card disruption in corporate travel. However, it's far from the only industry eager for cross-border B2B payments digitization and innovation.
"Many of these benefits are readily transposable into other verticals," Sims confirmed, pointing to the insurance sector as another target for Apiso to automate B2B settlements. "There are many practical use cases and benefits to be exploited for other businesses engaging in general trading or procurement processes."