Why cross-border payments are giving travel companies a headache
Anthony Hynes, CEO & MD, eNett International
When we think about booking travel, we think glossy brochures and aspirational pics on websites as part of the process to find the perfect break at the best possible price. Few of us think about the huge amount of operations going on behind-the-scenes to make sure that hotels, airlines, tour operators and other suppliers are booked and paid. Then there’s the potential minefield of managing cross-border transactions.
With global e-commerce revenues expected to more than triple by 2025, managing payments is an ever-increasing headache for travel companies. Rising costs and complexity are exacerbated by three major trends: currency fluctuations, a growing consumer demand for exotic travel, and a higher risk of fraud and supplier default. Here, we look at how travel firms can overcome these industry pain-points to improve customer experience (CX) and drive overall business performance.
One of the most immediate consequences of the Brexit vote was the instant drop in the value of the Pound. The recent UK snap Election certainly hasn’t helped matters either. The result? According to the CEO of TUI, Klaus Mangold, the decreasing buying power of Sterling – combined with rising prices in holiday destinations – will inevitably impact the price of holidays for tourists.
Many travel companies book with suppliers but don’t settle until later. Fluctuations in currency after booking therefore means that when it comes to settlement, travel companies can see their already tight profit margins eroded. Mark Warner, one of Britain’s biggest tour operators, hit the headlines last year for adding a retrospective charge to its customer’s bookings as a result of currency fluctuations, increasing the cost of the holiday. And ABTA reports that at least seven other companies have added similar post-booking surcharges in recent months. The negative customer experience can be costlier than the loss in profit.
Companies providing travel services need to move quickly to put in place systems which streamline their operations and enable them to keep costs competitive. Some tour operators are also using new virtual payment options to lock-in currency at the time of booking, meaning no surprises for the travel agency or the consumer. It also means they have a more accurate picture of profit and loss throughout the year.
Currency fluctuations are more unpredictable, and none of us have a crystal ball to tell whether values will go up or down. Is it really worth the risk?
Increasing demand for exotic travel
In the nineties and noughties, we typically spent our holidays relaxing on beaches, taking advantage of all-inclusive deals and guaranteed sun just hours from home. But more recently we’ve been exploring exotic destinations and seeking out offbeat travel experiences. Mastercard’s Global Destination Cities Index demonstrated this trend perfectly with cites including Osaka, Tokyo, Seoul and Bangkok all surging in popularity over the past couple of years.
This shift in the way we travel has inevitably meant that travel agencies are doing more business internationally. As an example, recent research by travel industry research specialists Phocuswright found that, in the past three years alone, the number of European travel companies accepting payments in more than ten different currencies doubled. Some even reported grappling with over 50 different currencies.
Choice has become the energy behind customer experience. In fact, our new customer experience whitepaper includes a comparison between the range of destination listings and the number of customer recommendations a travel agent receives. It reveals that those offering more choice, have more satisfied customers that are prepared to recommend them to others.
Clearly, it’s in the interest of travel companies to meet the needs of the more adventurous tourist – but it could come at a price. Doing business in more markets means dealing with additional foreign exchange and cross-border fees. Then there’s also the additional administration costs for setting up banking arrangements in new countries.
Many travel companies continue to rely on traditional payment methods for international transactions. But few agencies are aware of the hidden costs, such as surcharges and FX fees, which increase the cost of payments. For example, our analysis of bank fees showed agencies relying solely on their bank for international payments could be paying 3% more on each transaction compared to alternative options – a cost which significantly erodes margins.
The good news is that payment options have evolved to lower the cost of international payments. This includes offering local funding and settlement which dramatically reduce the cost of payments by avoiding surcharges and fees.
Supplier default and consumer protection
Travel companies branching out into new markets are dealing with previously unknown suppliers, which heightens the risk of fraud and supplier default. With 40% of travel firms already stating that credit card fraud is their biggest challenge, according to Phocuswright’s research, protecting against fraud and working with safer solutions will become an even bigger priority and mountain to climb in the future.
A Virtual Account Number (VAN), which is an automatically generated 16-digit Mastercard number, simplifies payments between travel agencies and their suppliers. And, because a unique number is used for each new booking or payment transaction, it protects against fraud. And chargeback capabilities provide protection in the event of supplier default.
There is a range of EU legislation in place to protect travellers when they book holidays including protection if a travel company goes bust and for delays to flights. Brexit negotiations mean that new UK regulations will need to be put in place. In the interim, one way of protecting travel companies and holiday makers is to use VANs: these will provide a digital record of the transaction which can be used to validate payments if an operator goes bust.
With international travel continuing to increase at a pace, it’s now more important than ever that companies re-evaluate their international payments strategy. It is a fundamental step to protecting travel spend, satisfying changing destination demands and delivering an exceptional customer experience. By making the entire payment process faster and more efficient, travel firms will not only reduce costs, but they will drive more customer advocacy. This is key for travel firms looking to increase growth, profitability, and overall business success.