As travelers expect, suppliers want to cut payment costs

With major airlines reporting their first quarterly profits since the start of the pandemic, the easing of restrictions nationally and internationally, and the rollout of vaccinations underway, the travel bug is starting to resurface.

In a recent conversation with Karen Webster, Flywire Vice-president and general manager of travel Colin Smyth said customers of the payments platform are seeing a return in travel requests as well as bookings, but with a post-pandemic wrinkle that makes flexibility the new first-class seat.

“You see pockets” of recovery, he said. “We saw it this summer with countries like Iceland or Croatia where people could get away a bit further. What we are starting to see with our customers are trips booked for the spring and summer of next year. People want to go to those unique places like Italy, Spain, Australia, New Zealand and Japan, which they have been waiting for for years.

Where Smyth sees turbulence ahead is in the cost of payments owed to manual or legacy systems. PYMNTS research found that travel agencies spend up to 3.2% of their gross revenue just on payment processing.

“You start there and say that even if there was no pandemic, how do we optimize that? And it’s a double-edged sword because you probably won’t be investing in new systems because [payments is] a cost center. So what we’ve seen in and out of the pandemic as a whole is the important role that not only payments play, but the software that comes with it. “

The only benefit, he told Webster, is the ability for companies to review their cost centers at a more measured pace than when business was moving so rapidly.

See also: Payments 2021: Assessing the digital gaps in business payment flows

A quest for liquidity and risk reduction in travel

The discussion focused on bringing more liquidity to the complex and changing travel payment system, as well as strengthening the travel supply chain while adapting to new realities.

“This is where it starts to get really interesting. If you look at a lot of companies we work with, it can take months between a deposit and an actual trip, ”Smyth said. “How do you get more working capital into the system while reducing the risk of a consumer making that payment?” They shouldn’t have to worry if the hotel they are staying in months away will be staffed.

“Risk enters the travel equation on many levels, whether it’s new expectations around route changes or how providers handle payment changes,” he said. “The post-pandemic era will be focused on increasing the working capital in the system while reducing the risks of the trip itself.”

Pressed on this point, Smyth pointed to the inefficiencies in travel bookings and payments that the technology is now tackling, noting that controllers and CFOs are constantly looking to improve the payment process but also reduce its cost.

Some tour operators, destination management companies (DMCs) and others are changing their policies to fit the trend. But Smyth said this was not uniform, noting that some providers are more flexible about when payment is required for travel booked 18 months in advance, as these operators have to go out and book that cruise ship or book this route themselves.

See also: Delta Airlines Third Quarter Profit May Signal A Wider Take-Off In Stressed Travel Demand

The choice of payments can complicate a return

When it comes to picking up various travel segments, Smyth said leisure and business travel experience totally different returns, at least for now.

“Do people feel like hopping on that one-day flight to San Francisco or the Red Eye to London for a meeting?” My joke is “lose a sales contract and watch what happens”. People will get back on the plane to avoid losing a big customer.

With those vaccinated now receiving booster shots to complete COVID inoculation protocols, Webster wondered if the multi-month window would narrow and who would start booking first.

“Remote travel and small groups will come back first, those to-do list items I think will come back,” Smyth said. “Do I see 5,000 people at the Louvre next week? I don’t see that happening anytime soon, ”he said.

Payment options are also shaping the recovery in the travel industry, nowhere more than with the buy now, pay later (BNPL) offers that are making their way to major online travel agencies (OTAs).

“What we hear in conversations with many [OTAs] is that there are a lot more options being supported by traders like BNPL, Smyth said. “I don’t think our merchant customers want to take on this now.” However, if OTAs see a significant spike in BNPL, it could lead them to offer installment payments, despite the associated high costs for travel providers.

Ultimately, payment platforms have a strong hand to play as a lot of travel agencies just don’t want to be payment companies. It’s problematic, Smyth said, because “the minute you become a travel business, you become a payments business, and they don’t want that problem. They don’t want to take it on. It just creates more complexity.

As the trips dust off and resolve themselves, Smyth said, “We see people taking fewer but longer trips. Obviously, all of this will evolve as the world returns. “

Read: YayPay Announces Partnership With Flywire Payment Platform

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NEW PYMNTS DATA: 2021 HOLIDAY SHOPPING PERSPECTIVES

On: It’s almost time for the holiday shopping season, and nearly 90% of US consumers plan to do at least some of their purchases online, 13% more than in 2020. The 2021 Holiday Shopping Outlook, PYMNTS surveyed over 3,600 consumers to find out more about what drives online sales this holiday season and the impact of product availability and personalized rewards on merchant preferences.

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About Matthew R. Dailey

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