One of the key drivers of
travel’s evolution from a primarily offline, manually processed business to one
increasingly coordinated online has been the transformation of the payments
industry.
The development of the internet, followed by the
birth of e-commerce - notably Amazon in 1994, eBay in 1995 and shortly
thereafter online travel brands such as Travelocity and Expedia - spurred a
need for digital payment options.
One of the first was PayPal, launched in 1999,
and today there are hundreds of ways for consumers around the world to pay for
products and services online.
According to the World
Payments Report 2018 from
Capgemini and BNP Paribas, global non-cash transaction volumes grew at 10.1% in
2016 to reach 482.6 billion. That rate is expected to accelerate through 2021
to 12.7% compound annual growth rate globally, with emerging markets growing at
21.6%.
This shift to non-cash transactions
is redefining business payments, which for many years were handled manually
with checks.
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While checks are still used - in fact the United States remains a “heavy user,” according
to Mastercard – the transition to digital payments has been happening for
years.
Mastercard estimates that the
current global business payments market exceeds $100 trillion, across all
payment types, but it estimates non-cash payments will grow an average of 6.5%
annually through 2020 to reach 122.4 billion transactions.
A big chunk of that money
flows through companies connected to the travel industry.
According to Allied
Market Research, the global business travel market was worth $1.30 trillion
in 2017 and is estimated to reach $1.66 trillion by 2023.
And certainly the
shift to online and digital payments across all sectors of travel has had a
substantial impact on the way business trips are booked and paid.
The process is still
evolving, as buyers and suppliers seek the newest, technology-driven solutions
to simplify, expedite and manage travel payments.
One such solution is the
virtual payment card. For the third piece in our focus on travel payments, we
dig into the topic of virtual cards and how they are changing the business of
business travel.
Background
In the world of business
travel, payment management is a critical and complex issue. Systems need to fulfill
multiple needs including speed, security, ease-of-use, fraud prevention, reconciliation
and policy compliance.
Since the early 2000s, virtual
cards have been gaining favor as a solution that addresses all of these needs.
Virtual cards, also called virtual
account numbers, are essentially credit cards that not do exist in a plastic, physical
form.
Every virtual card is configured
for a limited use, which can be defined by a specific date, amount of money, geographic
location or vendor. Any attempt to use the card outside its set parameters
would prevent the payment from going through.
Broad benefits
According
to a survey from AirPlus International earlier this year, 31% of companies
use virtual cards to pay for their employees’ hotel accommodation costs - up from
just 8% in 2015.
One of the things driving virtual card solutions is the expectation of a frictionless purchasing process.
Paul Raymond - Conferma Pay
It’s easy to see how this temporary, digital payment
form can provide a variety of benefits related to business travel.
“Let’s say you have someone in your organization who rarely
travels and needs to go to London. ... You could equip them with a virtual card and say
it’s good for your trip, hotel payment, your ride payment.
"It can only be used
in London for the next week, it has 500 British pounds and can only be used at
business travel-related merchants,” says Mario Zorn, associate director for
product development and innovation at AirPlus International.
Because every card number is tied to a specific use case, it
can be directly associated to a billing transaction, making reconciliation automatic.
In fact, WEX senior vice president of travel payments, Jim Pratt, says that was the initial impetus behind the use
of virtual card numbers.
“We were really trying to solve a reconciliation problem
initially and a payment problem secondarily. There’s a lot of cost savings and efficiencies
there,” he says.
That simplified reconciliation process benefits both the employee,
who is freed from the tedious task of getting reimbursed for their travel
expenses or matching corporate card transactions, and the employer, who receives
transaction data automatically and can rely on the built-in controls to ensure
employees are adhering to policy.
Virtual cards also dramatically reduce a company’s fraud
exposure.
A traditional business credit card may be tied to a
corporate account with a high spending limit, putting the business at risk of
substantial loss if that card is stolen or it is misused by the employee.
The controls built into a virtual card around dates of use and
transaction value minimize that risk.
And because these cards functions like traditional credit
cards, it’s simple for travel suppliers to accept them – and to scale.
“There’s a lot of pretty cool tech on consumer side when it
comes to making payments, but they don’t offer the ubiquity and coverage – even
regionally much less globally – and one of the great things about the virtual
card is you can quickly scale. You can be a startup in San Francisco or Melbourne,
Australia or Thailand ... and make payments to any supplier anywhere in the world,”
Pratt says.
Developments
In recent months, there has been an uptick in activity
related to virtual cards applications in travel.
Last fall, American Express launched American Express Go to
help companies handle business expenses for contractors, freelancers and infrequent
travelers. Companies can create a virtual card with time and spending limits
and send it to the worker in the Amex Go app.
You are used to a brilliant user experience on your iPhone or from your Facebook app or your Instagram app, and you want to have a similar wonderful, cool user experience for your business trip.
Mario Zorn - AirPlus International
In February, UATP and Conferma Pay announced a partnership
to bring virtual card payment technology to airlines and agencies.
The solution,
powered by Conferma Pay, gives UATP’s customers the option to use virtual
payments with all major global distribution systems, more than 100 booking tools and
500 travel management companies.
Also in February, Amadeus launched
an integration of Barclaycard’s virtual cards product, Precisionpay, into
Amadeus’ B2B Wallet payment solution.
And in April, Sabre and
Visa announced a partnership to enable travel buyers and suppliers to pay and
get paid with virtual Visa commercial cards through Sabre Virtual Payments
solutions.
But one of the biggest developments is work being done to enable
the storage of virtual card numbers in e-wallets, such as Apple Pay, Google Pay
and WeChat Pay, enabling travelers to pay at NFC “tap and go” terminals or with
a QR code.
“One of the things driving virtual card solutions is the
expectation of a frictionless purchasing process. That’s come about from the
likes of Uber and other leisure offerings where the actual payment part of it
is so far in the background the individual never has to worry about it,”
Raymond says.
Conferma Pay has been testing e-wallet integration for the
last few months, and Raymond says he expects the first corporate customer to begin
using the system within the next month.
“What we are able to do now is place a virtual card into a user’s
phone and they can provision that card directly into an Apple wallet or Google wallet
and then they are able to purchase utilizing the NFC tap and go technology, for
example around London for the Tube or at a large chain restaurant,” he says.
The functionality could also enable travel managers to
build more flexibility into their policies, knowing that with virtual payment
technology all spend would be captured and visible.
For example, Pratt notes the rise in interest in private
rentals and other sharing economy models.
“They [businesses] will be looking at not only how do we
book and put people in these kinds of accommodations, but how do we scale
things like fulfillment, payment, customer service,” he says.
“They will look to the current methodologies that they use
and say can we extend this so the way we’d pay for a stay, for example, at the
Hilton Chicago is also the way we’d pay for a home share in Paris."
UX first
In the end it comes down to user experience, and Zorn says
it's important to remember that for the traveler, how the system works is less
important than if it does indeed work and work easily.
“The two worlds of virtual and mobile are merging more and
more,” he says.
“Because for the end user – it makes no difference. Only
the nerds in the industry want to make a difference between virtual and mobile
payment. For the end users, it’s just a payment.”
As consumers become more accustomed to clear, simple experiences
using technology in their daily lives, Zorn says their expectation – and demand
– for the same in their work life will put more pressure on businesses to adopt
better solutions.
“You are used to a brilliant user experience on your iPhone
or from your Facebook app or your Instagram app, and you want to have a similar
wonderful, cool user experience for your biz trip,” he says.
“And especially with young people coming into the
workforce, they are more and more reluctant to follow cumbersome or even stupid
corporate processes just because they were defined by somebody somewhere at the
headquarters if they make no sense in the field.”