Why payment digitalisation is important for Online Travel Agencies
The travel industry is one that is constantly affected by tightening margins and more recently an unstable economy. With the big players and suppliers investing in their own direct channels, such as EasyJet’s relaunch of their holiday offering. As well as the dawn of price comparison sites, metasearch sites (E.g, SkyScanner) and bank retrenchment becoming somewhat of a new phenomenon. Online Travel Agencies (OTAs) are scrambling to reduce costs, ease overheads and simplify their processes.
This scramble has increased uncertainty in the travel space, like the collapse of travel giant Thomas Cook in 2019. Spiralling costs, ever-increasing debts and jurisdiction and regulatory changes further affected the airline.
However, the collapse highlighted why it is vital for businesses, within the travel industry, to get the correct payment value and supply chain. “The rise of payment digitalisation through blockchain is one-way OTAs are able to do this” (McKinsey & Co, 2018).
Margins, performance and profits for Online Travel Agencies
Focusing on the adoption of 3rd party banking partners sees the optimisation, automation and global expansion of businesses. Making the right decisions within payments can help Online Travel Agencies continue to both protect and grow their margins, moving away from the external pressures and allowing core business focus.
With Travel Agents and Online Travel Agencies making multiple cross-border bookings, from airlines, ancillaries, hotels and more – often at very high volumes in multiple currencies – understanding this impact becomes paramount. Currency access, FX exposure, payment delays and additional fees to ensure acceptance of these payments can cost anywhere between 0.5%-10% basis points per payment. A big margin that can have a real impact on damaging their bottom line. Within such an industry as travel where profit margins are squeezed (4%-10%), this can really make the difference between success and failure.
As such, addressing payment performance should be one of the top priorities within the sector, to ensure less collapses and failures of OTAs, alleviating these external pressures. Focusing on payment fees, FX costs and reconciliation as one can transform the competitive edge of a business releasing the pressure on profit and allowing focus elsewhere.
Combining foreign exchange (FX) costs, payment fees and reconciliation costs enhances how competitive a business can be – easing the pressure on business margins and allowing focus elsewhere. As stated by Mckinsey & Co. “A way to do this is to capitalise on the digital transformations within banking, especially with the introduction of 3rd party payment aggregators that focus on interbank relationships and managed banking that comes with this.”
Alongside this, as identified by Kearney, managed banking platforms and payment institutions are able to service businesses through a single API whilst also managing the back-office relationships and tasks including compliance, improving of payments visibility and improved efficiency – allowing for expansion into new currencies and geographies whilst ensuring they are not reliant on one single provider that may not be able to service their expansion.
How are fintechs changing the game?
By partnering with fintech counterparts, OTAs alleviate the need to build their own infrastructures and networks – which can be expensive, lengthy and time-consuming. Partnerships allow for growth while simultaneously addressing associated challenges. This allows for more focus on higher-level business goals and objectives. It also gives the opportunity to enhance customer relationships and increased growth of margins through marketing or reduction of overheads.
Freemarket is just one example of a successful payment institution, whose partnership with some of the world’s leading banks and financial institutions, as well as having extensive knowledge of the sector allows for a competitive edge, specifically when it comes to currency exchange and cross-border payments. Optimising processes will benefit you and add value to your offering. Having the ability to access market rates will create a seamless cross-border transaction process across 30+ currencies, which, in turn, offer margin progression solutions that traditional banks and financial institutions can not offer nor handle.
So what does all of this really mean for the travel industry?
By ditching the traditional banking models and adopting innovative fintech partnerships in 2020 the industry can benefit from a more stable economy and greater margins all around. Guaranteed acceptance, improved relationships, faster settlement and seamless reconciliation are all just a few ways payment institutions are helping the travel industry make payments more efficiently.
Join now and release the pressure on your margins!
