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4 Ways Travel Merchants Are Preparing Their Payments for a Peak

It’s no secret that the COVID-19 pandemic wreaked havoc on the travel industry. With the number of overnight stays dropping by almost 100% at the onset of the pandemic and still not reaching 2019 levels, the industry has now been battling for years.

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But if pre-pandemic trends are anything to go by – when winter tourism increased in 25 out of 27 countries in the EU (1) – then now is the time for travel retailers to ensure that sub-optimal payments arrangements aren’t leaving sales on the table this winter.

Here are CMSPI’s four top tips for travel retailers – from OTAs, to airlines – for the upcoming season.
Figure 1

Figure 1. Overnight stays in Europe, 2019 versus 2022

1. Get the payment methods right

It might seem obvious that the travel sector is one of the most international sectors around; but in payments, global means complex. Every consumer expects to pay for their stay like they pay for their goods at home – be that from their digital wallet, with a bank transfer, or on their company’s corporate card. And travelers have other bespoke requirements, too; it’s no surprise that industry-specific providers such as Fly Now Pay Later have emerged to allow jetsetters to split their payments over time, or that travel retailers are often the first to seize a new payment method. (2)

With cart abandonment rates in airline and travel sectors reportedly the highest across all ecommerce sectors (3), many merchants have clamored to fill their checkout pages with options. But with this can come high-cost integrations and complex omnichannel reconciliation, making it crucial that merchants achieve the delicate balance between which methods are necessary for conversions, and which are cannibalizing the optimal alternative. Ahead of the winter, travel merchants need to look again at the data driving their implementation roadmap, and explore techniques such as dynamic checkouts that use consumer data to show only the relevant payment methods for a given transaction. 

2. Make sure each payment becomes a sale

Once a customer has chosen their payment method, entered their details, and clicked ‘pay’, a merchant’s sales process appears over. But the payments supply chain is just getting to work. CMSPI estimates that European retailers lost over €40bn in 2021 due to ‘false declines’ – where a good customer sees their payment declined somewhere in the authorisation flow. These threats can be compounded for merchants with intricate, international setups – a perfect storm for travel merchants. Complex (and costly) transaction retry structures with multiple acquirers, along with an abundance of ‘generic’ decline codes which leave merchants none-the-wiser, mean that these merchants’ true failure rates can be impossible to decipher. That’s why the best-prepared merchants will be those in regular communication with every party in their supply chain – all the way from their acquirers, to their fraud providers, right down to the issuing banks at the end of the chain.

3. Know your cost base

While offering the right payment methods is imperative, a payments setup centered around online, international, and commercial transactions – as is often the case in travel - can be one of the most expensive to maintain. These transaction types can attract some of the highest scheme and interchange fees, on top of multiple acquiring rates which vary as volume is split across suppliers in different geographies. As if that weren’t enough, the payments industry has evolved a labyrinth of cost optimisation techniques specific to travel merchants. In Europe, these can come in the form of strategic interchange rates subject to multiple qualifying criteria, the ability to alter the registered location of a transaction, or virtual card programs sitting between third-party travel vendors and their partners. These incentives can be a lifeline, but are notoriously difficult to set up and almost impossible to implement optimally without effective benchmarking. Merchants need full visibility over the all the rates they’re paying – and crucially, whether they are being passed through accurately – to avoid a more expensive setup than their competitors.

4. It’s time to call your payments partners

The benefits of incentives are built around establishing effective communication with the payments supply chain. However, many travel retailers have already been approached by their primary partners in response to heightened risk during the pandemic. If this sounds familiar, it may have included the introduction of ‘holdback’ provisions, or other arrangements that hedge against risk when partnering with a travel merchant. To ensure your setup remains optimal, communication is crucial – not only over whether updated contracts are industry standard, but also over whether your historic arrangements weathered the pandemic in hindsight. For example, did your net cost position remain optimal in the face of unprecedented refund rates? For merchants who were firefighting during the pandemic, now’s the time to ensure that their setup is market-leading ahead of the holiday season.

Making the most of the upswing in travel

Now travel is back on the map in Europe, merchants are readying to ensure that nothing stops their customers from making it through the checkout. That means integrating multiple new payment methods across markets with vastly diverse and ever-changing customer preferences, and removing any ounce of friction before the ‘pay’ button - all within a shifting tapestry of regulatory requirements.

But are your whole payments setups ready to weather the upswing? Are the right incentives, risk requirements, and fee structures in place to maximise incremental sales and minimise costs? And are your transactions even becoming sales, let alone attracting quality, loyal customers? This winter, the merchants who get ahead will be those who put the customer experience first, without putting the performance of their payments partners second.

[1] https://ec.europa.eu/eurostat/web/products-eurostat-news/-/ddn-20191230-1

[2] https://www.emirates.com/media-centre/emirates-first-to-launch-new-industry-payment-solution-in-partnership-with-deutsche-bank/

[3] https://www.globenewswire.com/news-release/2020/01/23/1974210/0/en/Online-Travel-Payment-Industry-Insights-2020-2023-Mobile-Checkout-is-Being-Optimized-by-Adding-Seamless-Payment-Methods-such-as-Mobile-Wallets.html