NB: This is a viewpoint from Jason Hancock, head of channel development at eNett International.
Muhammad Ali famously once said: "Often, it isn’t the mountains ahead that wear you out, it’s the little pebble in your shoe."
While innovation in technology has enabled a diversity around content and improved booking flows, I can’t help but believe that the way in which travel agents and tour operators make their supplier payments today must be similar to that pebble in Muhammad’s shoe
So what’s it going to take to get the industry to take break from the ascent, take off the shoe and return the pebble to the track?
Why not start with the costs?
We’re all aware of the standard costs of payments – fees, surcharges, bonds, membership costs etc.
But what I’ve discovered from numerous discussions with travel industry professionals, is that the perception of the overall cost of payments is often not the reality.
While credit card costs are unsurprisingly top of mind, it’s important for the industry to take a more rounded view of the payment landscape and the numerous hidden costs linked to risk and inefficiency that can often cripple a travel business.
Pressure to cut costs and increase margins has never been greater. Add this to the recent events of suppliers collapsing and leaving agencies and their clients out of pocket.
It’s no wonder travel companies are looking for increased payment security. Traditional payment methods don’t always provide this, leading travel agencies to adopt more innovative payment solutions.
These often come at a cost, albeit nothing in comparison to losing Euro 1 million when an airline goes bust, the reality faced by one online travel agency last year.
Thankfully they were protected because they using a Virtual Account Number (VAN) solution and were able to recover their payments within three months, something they wouldn’t have been able to do had they paid with traditional methods.
FOREX and transfer issues
Then there’s the added risk of foreign exchange. For larger agencies that can hedge their exposure and afford multiple currency accounts, the risks are measured.
But for smaller agencies, paying exorbitant international settlement fees and not having visibility of rates up-front can make pricing tickets and packages challenging.
The industry is littered with finance teams for whom a large part of their job is compensating for inefficient booking and invoice matching.
Whether it is the travel consultants who are spending a day or two each month on reconciliation or a team of professionals manually reconciling payments, there’s usually a cost saving to be made through a more automated payment solution.
Finally, unpaid commission is a problem for over 40% of agencies, according to a PhoCusWright study, many of whom use a settlement service at a cost of 10%-15% to recover hotel commissions.
Why not just use a payment solution that automates this for you? It might even enable you to have a more direct relationship with your suppliers, ultimately providing better dynamic rates for you to pass on to your own customers.
For suppliers, the hidden costs centre around the timing of payment which we all know can sometimes take an eternity.
Breakage is an issue for hotels and while agents may see this as a benefit of inefficiency, it’s a false economy - the costs have to be made up elsewhere and that’s ultimately going to affect your rates.
Even monthly invoicing can mean a 60-day delay in payment, affecting supplier cash flow and potential interest earnings.
What many agencies and suppliers must do is break from tradition and adopt newer, more innovative payment methods that go beyond simply resolving the issues outlined above and offer the opportunity to earn transaction revenues.
Who wouldn’t want to get paid to pay?
So what does it all mean for the future of payments?
It’s all very well of me to outline these issues, so now let me offer a few predictions into where this is all leading…
- Payment processing will become increasingly automated with booking flow integration to reduce handling times and solve inefficient reconciliation processes.
- Direct agency-supplier relationship models will rise, offering more dynamic pricing with net-commissions to eliminate the headache of commission collection and increase the opportunity for better rates and terms.
- Surcharging will remain. Although initiated by the airline industry, you should expect other travel suppliers to follow suit. With this will come more tightly controlled regulations to ensure this doesn’t get out of hand.
- Suppliers and agencies will benefit from faster payments and hence improved cash flow, further reducing rates.
An increased awareness of the fully loaded costs will drive the aforementioned payment trends. Afterall, removing that pebble is ultimately going to help you get to the top of the mountain faster and a lot less painfully!
NB: This is a viewpoint from Jason Hancock, head of channel development at eNett International. Hancock and Mastercard will be co-hosting a Tnooz webinar next month to further outline travel industry payment trends and dive deeper into the true costs of payments.
NB2:Travel payment image via Shutterstock.