As
the travel and hospitality industries across the world recover from the impact
of the pandemic, online travel agencies (OTAs) are playing a pivotal part in
the revival. Their efforts directly benefit millions of small- and medium-sized
enterprises in the global travel and tourism trade. The rapid rise of OTAs
presents a striking picture of the era of global digital transformation.
According
to data from PATA (Pacific Asia Travel Association), within a brief timespan, OTAs
have won around 40% of the entire global travel space comprising hotels,
packaged tours, airlines, railways and cruises. During the forecast period of
2021 to 2027, the OTA market is anticipated to generate revenues of around
$1,500 billion by 2027.
Since
OTAs run on slim profit margins, they must optimize operations to safeguard and
expand their businesses. One way to achieve these results is via efficient payment
systems that are not costly or likely to impact customer experiences, which
would otherwise hurt their bottom line.
Here
are five payment challenges and the steps OTAs can take to overcome them and
make the processing of payments more efficient.
Expensive cross-border payments
Globalization
has led to all kinds of enterprises trading across borders, more frequently.
Since OTA suppliers and customers are spread across the globe, they require
reliable and cost-effective cross-border payments for global trade.
Besides,
there are other risks and costs involved, such as fluctuating forex rates,
transaction charges, long settlement times, the ever-present threat of fraud,
geopolitical uncertainties, and regulatory requirements. Consequently, along
with risk and fraud management, OTAs need to provide a broad range of payment
modes and manage multiple currencies. Note that virtual cards and airline
settlement plans are cost-efficient options whereas plastic cards and bank
transfers incur higher transaction charges.
With
the rise of digitalization across the globe, cross-border payments are
improving. Virtual cards and mobile payments are crucial trends fueling this
growth. Virtual cards promise low risk, versatility, and easy integration
through APIs. In fact, recent Juniper Research data
reveals virtual cards will reach $6.8 trillion in global transaction value in
2026. This positive prediction points to the growing need for the adoption
of such innovative & cost-effective payment modes.
Payment fraud risks
Inefficient
payment mechanisms can be the most vulnerable to fraud. Besides hurting profit
margins immediately, fraud can hamper the reputation of a company/individual,
impacting their ability to attract and retain customers.
According
to IBM, the second-most targeted industries for cybercriminals are travel and
transportation. As intermediaries, OTAs can be especially susceptible to such
crimes and have their reputations tarnished most easily, as emphasized in 2021
by Ryanair.
With
card-not-present transactions growing, fraud remains a core concern when
receiving payments or paying suppliers. Therefore, choosing payment partners
with secure platforms and an array of safe payment mechanisms has never been
more critical for OTAs. While virtual cards can safeguard OTAs in this regard, debit and credit cards are
riskier than bank transfers or airline settlement plans.
Complicated reconciliations
Cross-border payments are complex. Together with chargebacks and reversals, multiple payment means, and payment providers, it becomes costly and time-consuming to process transactions. Problems can be compounded when errors occur, making one liable to overlook fraudulent transactions, particularly if there is weak control and poor transparency. However, virtual cards can help transform this present scenario by eliminating manual processes and fraud, thereby making reconciliation seamless.
Challenging dispute and reimbursement process
In any business, payment disputes are not uncommon. Therefore, contested online transactions and the resulting chargebacks are prevalent. As for airline settlement plans, their dispute redressal and refund process are tilted heavily in favor of the airlines. With card payments, however, chargebacks provide a reliable dispute process while virtual cards offer the additional advantage of stronger fraud protection.
Low liquidity
For
all businesses, especially those in the travel segment, stable cash flows are
vital. Given the slim profit margins, the difference between a struggling or
thriving business is decided by liquidity. The pandemic has further emphasized
the significance of positive cash flows and cash reserves. To enhance the
duration of funds being held in their accounts, OTAs must have a vibrant
payment strategy. Cards are a worthwhile alternative since they increase the
period during which agents can retain customers’ funds till they settle the
card company’s dues. Here, virtual cards work best because they sustain
liquidity. Agents can customize transaction dates whereby money remains in
their account for a longer duration between the time of payment by the customer
and the period when money has to be sent to the supplier or merchant.
In
this context, as a global platform providing cross-border and multichannel
payments, TerraPay can increase the efficiency of payments for any OTA. While
payment fees are reduced, the convenience, transparency, and speed of payments
are improved wherever OTAs operate. We do this by:
- Reducing foreign exchange and transaction fees for international payments
- Speeding up money collection locally, converting it to the required currency, and undertaking bank transfers in real-time as well as making real-time, same-day payments across the world
- Enabling global expansion by managing payment
needs in new geographies as the business grows About the author...Koert Grasveld is vice president of payments at TerraPay.Learn more!