Fintech will play an integral role in the future of tourism

Of Damian Alonso, Head of Platform and Partnerships, Amadeus

Despite the current economic environment, our desire to travel has not weakened. Amadeus’ June Consumer Travel Priorities Report, which surveyed 4,500 consumers in the US, UK, Germany, France and Singapore, revealed that two in five (42%) rated international travel as a high priority for the coming year. Compared to the other responses, the trips ranked well. About 32% of respondents said they would prioritize domestic vacations, 28% cited online entertainment, 27% valued eating out and 20% said buying a new car or home was a priority. As a global provider of travel technology with close relationships with customers across areas including hospitality, business travel and aviation, we know many businesses are banking on this recovery.

Many travel agencies are now investing in offering the best customer experience to repeat travelers. One area where considerable investment is made is in payments and fintech. A good example is the introduction of advanced retail capabilities for airlines under the International Air Transport Association’s (IATA) New Distribution Capability, which removes payment friction to improve merchandising. Once again, Amadeus surveys confirm that most industry players share our view. According to our travel fintech trends survey of 70 senior industry executives, more than 50% of respondents plan to surpass 2019 payments and fintech investments, with 30% likely to match it. So, what are these features and why do they want to offer them?

Travel payment challenges

Many travel businesses struggle with chargebacks – the formal process initiated when a cardholder disputes a transaction, which often results in them being refunded directly by the issuing bank. Recent high levels of disruption and strained refund processes in the industry have led to significantly more chargebacks since 2020. According to the Travel Fintech Trends survey, 70% of travel businesses saw an increase in chargebacks, up 50% during the pandemic in 2021 compared to the 2019 average, and by more than 100% for a significant minority of travel companies (20%). This led to one in three firms increasing staff to manually process chargebacks during the pandemic, a time when operational roles were often reduced. Almost a quarter of respondents admitted that their companies cannot handle the increased burden and are currently unable to respond to or challenge chargebacks.

According to the chargeback management firm, Chargebacks 911, around two-thirds of all chargebacks are categorized as “friendly fraud” for which sellers should not be held liable. This happens when a customer makes a purchase with a credit or debit card and then disputes the charge with their bank even though they don’t have a legitimate reason to do so. There have also been reports of travelers submitting chargebacks in situations where they did not receive the signature cocktail during a flight or when a trip was “unreasonably turbulent”.

One way the industry is working to rethink chargebacks is through automation driven by improved information visibility. Often the key to resolving a dispute is open access to information. By making certain information more visible via application programming interfaces (APIs), such as order and payment information, there is an opportunity to automate and improve this important back office function.

Where the opportunities lie

Buy now, pay later (BNPL) – where trips are paid for in a series of installments based on a quick credit assessment – are becoming increasingly common in travel. Of course, BNPL is already a widely accepted payment solution in other sectors, with data showing that by 2024 around 10% of all e-commerce sales in the US will be made with BNPL, up 300% since 2018. This payment solution is particularly well-suited for travel, which has a high average purchase cost that represents a significant upfront investment on the part of the traveller.

However, travel companies are not banks, and assessing credit risk is complicated. Specialist providers have gained traction by offering plug-and-play BNPL capabilities for the sector. These providers assess the traveler’s credit score and ability to pay the installments. They may also offer models where they assume the consumer’s default risk, including passing the price to the seller at the time of ordering.

There are several scenarios where travelers choose to use BNPL, including upgrading to business class experiences and spreading the cost over 12 monthly installments against a one-off fee at booking. Meanwhile, many travelers who can afford the initial upfront costs still choose to spread out their payments to preserve their free cash flow. For travel businesses, BNPL helps improve customers’ booking and payment experience while increasing conversion and increasing associated revenue opportunities. According to Amadeus’ Pay When You Fly survey, 49% of the 5,000 travelers surveyed said they would be more likely to book an airline add-on service, while 68% said they would spend more overall on their trip if BNPL was offered.

Meanwhile, almost a third of travel companies this year see pricing services in multiple currencies as a priority. If travelers book a flight or vacation using a non-domestic third-party website, they are likely to be presented with the price in a foreign currency unfamiliar to them. Often this can lead to cart abandonment and can lead potential buyers to a third party website where they will manually convert the price.

A growing number of travel companies are interested in simplifying this experience by presenting services in a currency that travelers understand. By enabling them to choose their preferred currency to settle the payment on an airline’s website, it helps the company take greater control of the currency transactions to which customers are exposed. Instead of a financial intermediary completing a currency transaction and adding a conversion spread, travel companies can work with a currency provider to allow travelers to gamble in their native currency with greater transparency. It also avoids the need for travelers to navigate away from the booking flow to a third-party website to manually convert the price.

The future of fintech

Fintech will become more intertwined in travel and tourism as travel companies begin to offer regulated financial products that play on the loyalty benefits they have established over the years. The online travel agency Hopper, for example, has performed strongly thanks to its range of fintech products. Such a tool enables customers to pay a fee to leave a hotel after check-in for any reason.

Other fintech services include interruption protection for flight delays and cancellations and another that allows customers to pay to freeze the price of a hotel room before it rises.

Invisible end-to-end payment experiences will also become more widespread. Imagine a traveler arriving at the airport and identifying themselves using biometrics at the kiosk. They then decide to purchase express security and lounge access quickly and easily by presenting their face on a scanner. This method can also be used instead of boarding passes and passports, or when a traveler picks up a rental car or checks into a hotel. With identity stored on a traveler’s phone, travel companies can reduce compliance risk as they no longer need to store so much sensitive passenger data.

Payments are crucial to the overall travel experience. To meet the new expectations of today’s travelers, the industry needs greater innovation and investment. The expansion of fintech in travel provides a wide range of opportunities for travel companies looking to improve their digital experience, increase customer loyalty and, most importantly, ensure a smooth travel experience across all touchpoints.

Travel will always remain an escape from everyday stress, we should make it enjoyable and as flexible as possible.