Travel Fintech Trends to Watch in 2023
Excerpt from PhocusWire
Travel has continued to recover this year, with IATA data showing that airline industry revenue is expected to be 43% higher than in 2021. Our own analysis also suggests robust demand, concluding that consumers were prepared to protect travel costs ahead of other discretionary areas , like for example. renovation or fashion.
As we enter 2023, how can the travel industry benefit from advances in fintech? And conversely, where can the fintech sector find new growth opportunities in the travel industry?
Remember when opening a bank account meant walking into a high street branch, or when only a small number of banks offered financial services? The world has moved on, with the maturation of digital-first challenger banks and the widespread availability of fintech services.
Embedded Finance is the natural continuation of this trend, where financial services such as payments, loans and current accounts are integrated into our everyday digital experiences. According to Bain, more than 5% of all financial services transactions in the United States can already be classified as “embedded finance,” and these transactions will be worth over $7 trillion by 2026.
With high levels of trust and existing loyalty schemes, the travel industry is a natural contender to embrace embedded finance. Are the airlines going bankrupt? It really depends on how you define a bank.
While we do not expect travel companies to seek regulatory approval to begin offering lending services, we do expect them to work with wholesale suppliers of such products. We also believe that it is increasingly likely that travelers will be able to buy and use current accounts, payment services and loans without leaving the travel company’s app or website. Instead of travel companies reselling fintech services and passing travelers on to the service provider, the industry is likely to embed these services.
There are already good examples of business models for embedded finance. Take Shopify, which offers a complete suite of software-as-a-service so businesses can quickly launch an online store. Over half of Shopify’s revenue actually comes from payments and loan products provided to e-commerce merchants, which it integrates into its products.
2022 has been a year of macroeconomic adjustment. Currencies have fluctuated around the world, and there is good reason to believe that currency volatility will continue next year.
We believe finding new ways to manage this volatility, or at least secure travel companies and their customers, will be a significant focus in 2023.
On the B2B side, technology can play a role in helping travel businesses hold a range of different currencies so they can settle with partners without incurring foreign exchange (FX) losses. Similarly, we expect greater demand from travelers for services to be priced in their native currency, and this will provide opportunities for travel merchants to improve the customer experience and take advantage of currency spreads.
Authenticating payments smoothly and securely has been a key focus, with Strong Customer Authentication (SCA) requirements promoting the role of biometric authentication as a “second factor” when proving your identity. It is already possible to pay for goods and services online using biometric authentication options in services such as Apple Pay or Google Pay, but we believe the travel industry can go a step further.
Biometrics are rapidly catching on for travel use. For example, Amadeus is currently working with British Airways to trial biometrics at Heathrow Terminal 5 on selected flights. Passengers who choose to sign up no longer need to provide their boarding passes or passports at check-in, baggage or when boarding the plane. Instead, facial recognition is used to validate the passenger’s identity as they approach each service point. Similarly, hotel chains are experimenting with biometrics for self-service check-in.
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