Preparing your funds to travel overseas requires substantial forethought. How much local currency to withdraw? Where to find the best exchange rate? Are there enough small changes for tips?
But just as the consumer experience has been transformed by COVID, the travel experience is increasingly digital-first, with tourists more frequently reaching for their phones than their wallets when transacting overseas.
Take Southeast Asia, where high mobile penetration rates mean that from the hawker centres of Singapore to the street markets of Jakarta and the five-star hotels of Hong Kong, tourists and locals alike expect to pay using nothing but their phones. There are even apps that allow them to give or receive a tip on the go, without ever touching a Rupiah.
Over the pandemic, people became accustomed to the seamlessness and flexibility of digital payments, and they now seek the same ease when transacting during their travels. It’s an expectation that applies not only to typical travel experiences like dining out or visiting attractions but to providers across the entire journey, from planning and booking their trip to microservices along the way.
Tapping into the borderless consumer represents a huge growth opportunity for tourism and travel providers, but to fully capitalise they must be able to transact with this new consumer group and see payments not as a means to an end but as a path to creating competitive advantage.
Travel: A trillion-dollar opportunity
Over the next decade, the travel industry is expected to grow to account for nearly 12 per cent of the global economy. This boom presents huge opportunities not only for traditional travel industry players but also for those in similar industries and services.
For the modern traveller, the ability to transact seamlessly without worries of international foreign exchange fees or friction is essential to a good trip. Once they arrive at their destination, travellers want to hire an e-scooter, check out a local show or attend a yoga class, all using their preferred digital payment method.
Travel planning has also evolved into a more seamless experience with the growth of the Online Travel Agency (OTA) market, which accounts for approximately 40 per cent of global bookings. Travel marketplaces need to speak to a broad base of customers, offering seamless payments whether customers are based in Dusseldorf or Doha.
This means managing a diverse range of currencies and digital payment options preferred by consumers in each market, from credit cards to mobile and digital wallets.
Added to this, with flexibility and security being high priorities for post-pandemic travellers, instalment payments through BNPL players and enhanced fraud management through methods like two-factor authentication and 3D secure verification are adding to the complex payment requirements for OTAs seeking to provide the best customer experience.
Payments are key to winning in this new landscape
But it’s not only the front end that is increasingly complex. As OTAs become more sophisticated, offering a connected, one-stop shop for all travellers’ booking needs, they must coordinate a payments ecosystem with thousands of partners and suppliers.
With recent data showing that travel agencies take up to a 20 per cent hit on their profit margins due to avoidable, payment-related costs, optimisation has the potential for a big impact.
In this sense, payment innovation should be viewed as a competitive advantage. It involves an effort to future-proof and boost the backend– so businesses can offer full flexibility and experience for their customers.
This may mean onboarding back-end infrastructure to unify, optimize and test payments, expand offerings, or embark on cross-border partnerships with other market players. And at the same time, it’s also about managing regulatory requirements to ensure businesses comply with the ever-changing landscape.
As an example, Ferryhopper, an OTA focussed on ferry travel, was impacted like most European businesses with the introduction of Strong Customer Authentication (SCA). With limited resources to tackle the regulation, it applied a blanket approach of mandating a 3DS challenge for every transaction, which eventually improved its conversion rate.
In an industry where such incremental changes and improvements can have a huge impact on business performance, revenue can often be hidden in payment data. Whether testing payment traffic, alerting when there are dips and rises in performance or automating fallback mechanisms, it can mean the difference between winning and losing.
Back-end innovation can also enable online travel marketplaces to power a better front-end experience. Ferryhopper tackled their issue by using Primer’s adaptive 3DS feature that only prompted the 3DS challenge for transactions falling under the scope of SCA. This effectively helped them increase their conversion rate by 2 per cent, which otherwise would have been lost.
Additionally, rolling out local payment methods can open doors to new markets. While building brand recognition with the customer, the payments themselves can be routed based on conditions such as currency, market, verification and products. This not only guarantees payment success but creates a frictionless experience for the user.
As digital payments become the norm, providing a safe and convenient expanded payment offering is how the travel industry must meet the expectations of the borderless consumer – but it’s in the behind-the-scenes innovation where they can gain an edge over their competitors.
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