The challenges of payment technology innovation in the travel industry

The challenges of payment technology innovation in the travel industry

A recent trend study co-presented by travel technology provider Amadeus and revealed quite a few interesting connections between payments and operational excellence.

The headline takeaway was that most travel providers take a 5.4% skim off their sales solely for processing payments. This means that a marginal reduction in payment processing costs has an outsized impact on profitability.

Within a complex industry like travel, payments capabilities must be robust and adaptable. With this in mind, here are some salient points about leveraging third-party expertise for profitable payments in travel.

Travel Payments Study

Reduce unnecessary infrastructure costs

Developing and deploying new payments infrastructure is complicated and expensive. This added cost from custom infrastructure can dramatically reduce profitability in industries with low margins, due to both high upfront cost and ongoing maintenance.

One solution to avoid custom payments infrastructure is to take an off-the-shelf solution and plug it into existing technologies. Specific customizations can then power specific business cases.

Using our own company as an example, we have deep integrations with MyCheck and YourPay, among others. By plugging into an existing gateway, this eliminates the need for new payment infrastructure and helps control costs. Plus: it’s much faster to integrate and start enjoying the benefits of new payment technologies.

Focus on fixed rates and partnerships

The marginal cost of payments can be a headache. That is, the cost of payments simply rises alongside revenue. A focus on fixed rates through smart partnerships can shift this equation.

Vendors that focus on their technology as a service can offer fixed-rate options that increase profitability as gross revenue grows. This reduces cost as a percentage of revenue, dropping straight down to the bottom line.

Given that payments only increase in complexity with emerging digital channels, these vendor partnerships matter more than ever. According to the research, the biggest payment-related pain for travel companies involves managing multiple payment service providers (PSPs).

Travel Payments Study Figure 8

Another stressor is the overall system costs, which we see as tightly correlated. When managing multiple PSPs, time investment and overall system costs go up. Multiple vendors mean multiple contracts and multiple accounts to reconcile. Complexity creates cost, often simply due to the difficulties in verifying adherence to agreed-upon terms.

Improve customer service and operational excellence

Let’s be real: Customers don’t care about complexity when it comes to payments. They simply want to pay how they like to pay. The vast majority of consumers don’t sympathize with complexity as a reason for not offering a preferred payment type. They just want convenience.

Respondents agreed overwhelmingly. Customer requests – and the threat of losing customers – drive the majority of decisions around new payments technologies.

Travel Payments Study Figure 3

This leads companies to invest heavily in new payments technologies. Yet, some of these technologies quickly fall out of favor with consumers. The company is then left holding the cost and residual complexity, without much to show for it.

Reduce liability

Liability and security are the top issues when it comes to payments. Being successful in this area takes a sophisticated approach to fraud detection. Detection technology must both provide certainty and flexibility in a changing environment where new threats emerge each day.

The desire to reduce liability, and increase security, is a driving force behind payments-related innovations. Yet, serious hurdles come up when companies measure potential innovations against risks to consumer and credit card data security.

Companies also want to avoid innovation-related fraud charges, all the while realizing that complexity and number of people involved are sometimes too large of a barrier to innovation.

Travel Payments Study Figure 9

Maintain global relevance

Those who ply the payments trade know how localized payment preferences are. Different countries, and even regions within countries, have unique behaviors. When a brand doesn’t provide a preferred payment method, business is likely lost.

Study respondents identified numerous benefits from seeking out third-party assistance on the payments front. Security, speed to market, and increased revenues from giving consumers greater choice are the top three benefits of third-party tie-ups.

Maintaining global relevance is about both of those things. Localizing your offering means that you can make more money in the regions that you serve. Reducing the time it takes to get those features out your customers shortens the time it takes to make money from the investment in those features.

Travel Payments Study Figure 10

While certain businesses find advantages in building these technologies themselves, many quickly realize that it makes more financial sense to partner with payments experts. Among respondents, 71% saw reduced overall costs and 68% enjoyed greater allocation of their limited capital resources thanks to vendor partnerships.

Bringing it all together

As payments technology providers ourselves, the PYMNTS/Amadeus research reflects what we often hear from merchant clients: payments are simply too difficult to go alone. Tying up with a payments expert offers instant expertise that reduces costs, cuts through complexity, and increases payments profitability. You focus on product, we focus on payment!

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