Optimisation boosts competitiveness and and margins, says Ixaris chief executive Aran Brown
It’s been another year where OTAs have had to scrap and focus in order to forge ahead in a difficult sector. Thomas Cook collapsed in September and, while that was a unique set of circumstances, it was a reminder of the cash and margin pressures all businesses in the travel industry face every day. Couple this with growing consumer expectations of value for money and a seamless booking experience, and it’s clear that OTAs will need to look for every opportunity to combat this squeeze and find new ways of unlocking value.
What many don’t yet realise is that payments transformation is often their best untapped opportunity to do this. OTAs have traditionally seen payments as something that just needs to be kept ticking over, with little strategy or expertise placed in the function. However, the more sophisticated OTAs are starting to use payments strategically and – in many cases – it’s becoming as important to a business’s performance as data. As we look ahead to 2020, we’ve identified three trends that OTAs will face – all of which relate directly to payments, and all of which can be mitigated with a strategic approach to payments optimisation.
The cost of credit
OTAs operate in a fiercely competitive space with seemingly no let-up in the race for new customers. In 2020, thanks in part to changing consumer expectations around the provision of credit at point of purchase, OTAs will look to provide more flexible payment options, allowing their customers to pay off purchases in small instalments.
OTAs will pick up an increasing share of the tab for these credit arrangements, which has a commensurate effect on their already-tight margins. Credit will always carry a cost of course, much of which has traditionally been passed on to the consumer. But as the model becomes more widespread, price pressures and market competitiveness will inevitably push OTAs to finance more of that credit themselves.
However, this increases an OTA’s risk burden and outgoings at a time when they’re under pressure from diminishing rates of return and intense sector competition. Given this context, OTAs are under unavoidable pressure to both find ways to reduce risk and keep more money in the business.
Ease of experience
They’ll need these funds given how mobility and the offerings of disruptors like Airbnb have transformed consumer expectations of the travel-booking experience. Metasearch companies and agency-model brands, which previously would’ve sent consumers to the supplier’s website to complete a purchase, are now looking keep the user in their own ecosystem rather than interrupt the experience. This carries a cost burden for OTAs, which are taking on the payments part of this process that would’ve previously sat with the end-supplier.
While there’s no doubt that keeping the user in a single ecosystem has long-term advantages, it certainly increases the complexity and cost of the offering. Payments optimisation offers a way to balance this cost with revenue, putting OTAs in a far stronger position to deliver a user experience that will chime with today’s – and tomorrow’s – consumer.
Play your cards right
Margin pressure is something all parts of the travel ecosystem must deal with, and airlines are becoming more sophisticated in the way they identify and disincentivise the use of certain cards. As airlines sharpen up their approach to payment methods, in 2020 OTAs must respond by having a range of cards at their disposal that are used in specific circumstances or with specific suppliers.
Consider this – OTAs are used to paying airlines with high-interchange virtual cards that have helped increase their margins. For airlines, however, these cards can eat into margins, which has led them to levy charges or decline cards. This payments friction can ultimately result in decreased airline distribution options and difficult relationships.
Airlines and OTAs should be on the same team. OTAs spend billions on marketing that brings demand to airlines, but payments friction is preventing them from working with airlines in a mutually beneficial manner. Even if airlines are willing to support OTAs as distribution partners, card-based rewards alone are ineffective at creating sustainable relationships due to the lack of cost transparency for both parties.
One way for OTAs to ease this tension is to optimise payments and have a range of cards available and match the card with the airline. But there is actually scope to go even further, and re-engineer the entire payments flow to the benefit of airlines and OTAs alike. What if costs could be lowered for airlines, for example, and rewards for agencies were mutually designed to promote distribution? What if unnecessary intermediaries could be removed from transactions and there were no IT barriers to adoption? If this were to become a reality in 2020, how would that change the dynamics of the industry?
These are crucial questions, but OTAs will set themselves up for success long into the future by addressing payments transformation now. Payments optimisation packages can give OTAs the flexibility and security to provide a compelling offer to their customers, while paying their own suppliers in a way that reduces risk. The money that is saved on credit costs can then be redeployed into marketing and other business initiatives, boosting an OTA’s competitiveness and providing a much-needed boost to their margins at a time when the external business picture is also uncertain.
Whatever the coming year brings, though, optimising payments will give OTAs a platform from which to invest smartly and stay ahead of competition. Now is the time to get on board.