During the last decades, the impact of technology on travel has been significant. New IT services and technologies such as cloud computing and automation have allowed companies in the space to reduce costs, enhance operational efficiency and improve services and customer experience.
Now, new payment innovations and fintech trends such as open banking, embedded finance and banking-as-a-service (BaaS) are bringing new opportunities to the table, allowing companies in the travel space to access new revenue streams and improve customer loyalty.
In a new blog post, top executives from Amadeus, a leading IT provider for the global travel and tourism industry, share their top fintech predictions for the year to come.
Open banking introduces new payment methods
Open banking, one of the biggest changes in the financial services industry, is expected to introduce new payment methods. Payment initiation services (PIS) are amongst the most exciting ones.
PIS are a type of service that use online banking to make payments over the Internet where means of payment such as a credit card do not need to be used.
PIS providers essentially initiate a payment from the user account to the merchant account by creating a software “bridge” between these accounts, fill-in the information necessary for a transfer and inform the merchant once the transaction has been initiated.
These solutions are often cheaper and more efficient. Moving forward, Amadeus believes some travel companies will “go big” on direct bank-to-bank payments, especially for seller/provider transactions where trust is already established.
Jumping on the embedded finance bandwagon
Embedded finance is another major fintech trend that’s set to introduce new opportunities for companies in the tourism space.
Embedded finance enables any company to integrate pre-built financial solutions via an API into their offerings. These solutions can be anything ranging from payments and lending, to other specialized services such as insurance coverage, and investments.
Though airlines have provided co-branded cards for years now, embedded finance technologies are widening the range of financial services travel companies are now able to offer to their customers.
Around the world, a number of travel companies has already begun venturing into the financial space. In Indonesia, Southeast Asia’s largest online travel startup Traveloka provides a range of financial services including payment cards, insurance and wealth management.
Last year, Canadian travel upstart Hopper teamed up Amadeus to offer insurance policies and price-freeze solutions.
Embracing BNPL arrangements
Over the past few years, BNPL options have surged in popularity, propelled by the boom in online shopping created by the COVID-19 pandemic.
Today, brands like Klarna and Affirm have become household names by allowing any e-commerce player to embed BNPL options into their websites.
For travel merchants, the opportunity of BNPL relates to upselling, or the potential to encourage customers to purchase a higher-end product, an upgrade, or an additional item, increasing thus the basket size.
A study conducted by Amadeus, which polled 5,000 global travelers, found that 68% of respondents would be encouraged to spend more than usual on summer travel if a BNPL option was offered. 49% indicated that they would be more likely to buy airline ancillary services if a BNPL option was offered.
“With this type of upsell potential, we believe every travel merchant will at least consider BNPL options in 2022,” predicts Amadeus.
Travel companies and airlines including Expedia, Hotels.com, Priceline, Alternative Airlines, United Airlines, Lufthansa and Kayak have already embraced the trend, using BNPL arrangements provided by the likes of Klarna, Afterpay, Affirm and Uplift.
As technology continues to develop and become more widespread, consumers are demanding superior experiences and easier payment options.
Frictionless payments focus on fastening the checkout experience by reducing the number of steps required to complete a purchase. This improves buyer experience and loyalty, and increases revenue for merchants from fewer abandoned shopping carts.
Over the past few years, several payment technologies have emerged to remove friction. Amadeus outlines three key technologies in this areas: tokenization, which enables merchants to encrypt and securely store customer payment information in their own systems for future use; merchant initiated transactions such as subscriptions and instalments where payments are initiated by the merchant without the need for the customer to do anything; and last mile digitalization, which uses techniques like QR codes and “pay by link” to upgrade processes like chip and pin to e-commerce payments.