An effective payments strategy is key for travel agents post-COVID

By Spencer Hanlon, Head of Travel at Nium

Of all the industries rocked by the COVID-19 crisis, travel has certainly been hit the hardest. The crash in international tourism due to the coronavirus pandemic could cause a loss of more than $4 trillion to the global GDP for the years 2020 and 2021, according to a recent UNCTAD report. Yet after an exceptionally difficult eighteen months, global vaccination rates are climbing and international travel is cautiously beginning to reopen for business. As the industry embarks on the long road to recovery, there are a number of considerations for those looking to take advantage of the anticipated resurgence in travel in the coming months. In moving beyond the disruption of the pandemic while navigating the new processes that have been introduced as a result, digital transformation is key – particularly when it comes to payments strategies.

Online travel agents were once the pioneers of e-commerce, offering a cutting-edge digital experience in the way they sold and booked travel experiences for customers. However, as is common in the industry, the back-end processes involved in forwarding on payments to suppliers (such as hotels and airlines) is often reliant on outdated methods, which are inefficient and costly. Indeed, it is estimated that as much as 20 per cent of travel agency profit margins are lost to these avoidable processes[1], such as reconciling invoices with payment statements.

Travel agents can no longer afford payment inefficiency. Travel has long been a low-margin sector, and since the pandemic begin, those margins have been even tighter. Supplier payment is a significant, yet well-hidden expense that can make all the difference between an agent making a profit or a loss. With profitability a key priority for the beleaguered industry, an effective business to business (B2B) payment strategy is more important than ever before. As a result, virtual cards are gaining traction as a new and improved way to make B2B travel payments, as they are highly automated, offer complete control and remove the need for manual reconciliation.

Traditional B2B payment methods: the big three

Bank transfers, in which money is directly transferred from the agent’s account to the supplier’s, are very costly, particularly if they involve international payments, as foreign exchange fees and unfavourable currency conversion rates are then incurred. The indirect costs are also very high, as it is a time-consuming, manual process. What’s more, reconciliation can be a nightmare as a bank transfer usually covers a number of different transactions.

Airline settlement plans, which allow an agency to make a regular single payment covering all tickets that have been bought from scheduled airlines, also cause reconciliation headaches, and this method often requires agents to apply for International Air Transport Association (IATA) accreditation and to lodge bonds or other expensive forms of collateral.

Finally, plastic cards carry a major risk of fraud when they are handed over to multiple merchants around the globe. Also, as agents are dependent on the currencies and card products supported by the bank issuer, they are typically inflexible, and offer limited transaction data, making it an administrative challenge to reconcile statements against supplier invoices.

Optimising payments strategies with virtual cards

A virtual card carries a 16-digit number, an expiry date and security number, just like plastic or debit cards, but virtual cards are generated electronically and are normally used for one transaction only. Recent events have propelled virtual cards from a ‘nice to have’ to an essential in the industry. Today, virtual cards aren’t just a better B2B payment method for payers – they are also more efficient for the merchants receiving funds, as they deliver funds quicker and slash time spent on reconciliation and refunds.

Embracing virtual cards as part of an optimised payments strategy enables agents to take advantage of a highly automated service and offer complete control. For example, the use of one number allows for unique controls to be placed on each transaction, including specifying the maximum cost, the merchant, and when the payment is made. These unique card numbers also instantly match every line item on a supplier invoice with every line item on the payment statement, removing the need for manual reconciliation. Virtual card reporting can also be uploaded directly into the back office. The estimated improvement to profit margins for travel agents switching to virtual cards is 25 per cent[2].

As travel agents adapt to meet the new post-COVID reality and prepare for the resurgence in global travel, liquidity and cashflow will be key to enabling them to be dynamic in order to meet evolving customer demands. Optimising B2B payments reduces risk, makes processes more efficient, and can help to streamline a customer’s journey. Indeed, this approach enables agents to adopt an efficient refund policy, an essential part of any post-COVID recovery strategy. Airline settlement processes failed in the early days of the pandemic. With flights being cancelled on a daily basis, reconciliation and refunds became extremely difficult. In contrast, virtual cards let agents claim refunds via the card dispute process if the merchant fails to refund for a service that has not been provided or has been changed.

Customer expectations have changed in today’s complicated world of travel, and businesses will only be able to meet these requirements by being both flexible and profitable. A winning B2B travel payments strategy can make all the difference as competition heats up in a revitalised market in the coming months. Ensuring that technology is in place to support a smooth virtual payment process, while delivering the flexibility needed to make changes to bookings, will be crucial to any agent’s success in this journey to recovery.

[1] Source: Ixaris https://www.nium.com/travel-industry-payment-strategy-ebook/

[2] Source: Ixaris https://www.nium.com/travel-industry-payment-strategy-ebook/