Travel companies know that payments innovation is mission-critical when it comes to acquiring and retaining consumers all over the world. It’s a clear fact in the data — 81 percent of travel firms indicated that payments innovation is on the menu for the next three years, according to the PYMNTS/Amadeus IT Group Travel Payments Study.
Bart Tompkins, managing director of Amadeus Payments Business Unit, told Karen Webster in a recent interview that it’s also apparent in his conversations with airlines and hotels. They want to be able to offer payment experiences that meet their customers’ preferences in terms of method, that go through without a lot of friction, and they know it’s mission-critical to offer those services because they lose sales without them.
Moreover, Tompkins told Webster, airlines and hotels know that lack of innovation is costing them real money. According to the study, 5.4 percent ($74.5 billion) of global travel sales are going toward payment services providers. However, despite the knowledge that innovation is necessary on multiple fronts within the industry, the pace has been slow in recent years. For the vast majority of travel players that aspire to greater innovation over the next three years, only 15 percent have actually attempted new payment innovations.
To put in terms in familiar to travelers: Innovation is definitely on the runway these days, but it’s been hard to get the wheels up.
Innovation, though, is no longer optional in the environment — it’s simply too competitive. The goal now, Tompkins explained, is for travel industry players to find ways to do more with their payments in terms of what they offer their customers, while also doing much less when it comes to touching them on a technical level.
The Legacy Challenge
Hotels and airlines, he noted, have shown very little historical interest in becoming payments companies. As a result, payments within this sector, particularly for airlines, have a long history of “slipping into the cracks of various departments within an airline. Finance or digital, or sales, are all possible destinations.”
He continued, “There just hasn’t been a very strong focus on payments itself. It is something that has to be done. Their job is to fly a plane or run a hotel — this is a function that they tucked away.”
The problem with this is that travel payments can be incredibly complex in a variety of ways.
First, by nature, they are very changeable, he noted. Consumers book flights, change flights, adjust flights, adjust hotel stays, make incremental charges to their spend during a hotel stay — payments are a much more flexible and changeable thing in travel payments, with a good deal more access points. Furthermore, the fact that these transactions often happen across borders only adds to the intrigue.
Second, travel payments — since there are so many access points and changeovers — are frequent targets for fraudsters. There are many opportunities for things to go wrong, Tompkins added.
Finally, as online and digital changes are exploding, the complexities only become more magnified.
“The sheer complexity of the industry is incredible. And in the digital era, travel companies are working in multiple countries and plugging in multiple solutions. Airlines and hotels were both early adopters with online payments, but they have built out old legacy systems with lots of providers plugged in,” Tompkins said.
These systems, he noted, are large, heavy and incredibly difficult to manage, adding complexity to an already complex environment, which means they are something of a weight on the businesses that operate them. However, they are a weight that businesses can be hesitant to throw off because they are used to the complexity.
“Those older systems don’t work in a digital world that has moved on; they are too [inefficient],” he said. “But they are nervous about touching them because they do kinda work.”
The problem, Tompkins added, is that “kinda working” isn’t really good enough.
Aggregating The Problem
When one looks at newer entrants into the market (such as Asian and Southeast Asian airlines or new up-and-coming discount players), he said, they are more understanding about payments and are able to do more with them. They can offer those sleeker experiences, or even the value-added ones that build additional services (and spend) into travel bookings.
The reason they are able to do this, he noted, is because they are newer and untethered to a heavy and complex payments operating system. Instead, they can start with building something mobile-focused and flexible since they emerged in a world where that was the consumer expectation.
Consumers who’ve been shopping on Amazon for over a decade, he explained, get rapidly irritated when they can’t pay with a single click or pay by whatever method they want to use, be it a Visa card or Alipay. Those consumers are quick to click away and move on to the next provider that has the travel arrangements, and payments experience, they want.
They aren’t going to wait for the travel industry to innovate; they are increasingly going to seek out the players that already have. That means travel industry players will look to work with third-party aggregators, in the sense that Amadeus is an aggregator.
“We offer a payments platform that will aggregate all payment services into a common front end,” he said.
The airlines and hotels don’t have to focus on payments or manage multiple relationships with payment providers, which 40 percent of travel companies find challenging, according to the study. Payments do not become a black box — the companies can see the payment channels, as well as their uses and fraud levels, and view how much revenue runs through them in a common interface.
They don’t have to “do” payments at an upper level. They can focus on the things they want to do, namely, fly the planes and run the hotels.
“The majority of players in the travel industry are looking at third parties for payment support because they are increasingly realizing they don’t want to manage that themselves 100 percent,” Tompkins told Webster.
“Inspiration,” Tompkins noted, has been a popular buzzword in the travel industry in recent years. Customers, first and foremost, come looking for a utility (the ability to get from place to place or a place to sleep), but merchants are finding that consumers want more than that. The field of travel is crowded, and someone else could be offering the same utility the consumer is looking for and more.
Newer players in the industry already understand this quite well and are out ahead, being innovative and finding ways to wrap the payment around a more inspirational travel experience that is faster, more efficient and more enjoyable. At the end of the day, the rest of the travel industry is being pushed along and increasingly rapidly, because — in a high-competition, thin-margin environment — every customer counts.
“Every player needs to avoid the loss of the customers,” Tompkins said, “which means you want them to have as many options as possible, and for it to be seamless and for payments to be easy. If you have walked them all the way through a booking process and matched them with everything they want, the worst possible thing to do is lose them at the last moment when they try to pay.”