US start-up ConnexPay is pressing ahead with a speedier roll out to international markets saying the COVID-19 pandemic has further exposed long-standing failures in the travel payments system.
The firm has revealed plans to launch in the UK in the last quarter of 2020 bringing its consolidated payments acceptance and card issuing technology to Europe for the first time.
Bob Kaufman, chief executive of ConnexPay, said coronavirus has exposed how the travel payments system is broken as agents struggle recoup money from suppliers to refund customers.
“I was a banker for 20 years and I left because I could see that the payments process within travel is, quite honestly, broken. This pandemic that we are going through has highlighted that.
“Our belief that the good that will come out of this bad situation is that companies will co-operate and process payments in the ConnexPay way.”
Kaufman said the two sides of the payments process – payments acceptance and card issuing – have never before been brought together into one process.
This means agents who have paid suppliers but are unable to get the money back to refund customers for cancelled trips find themselves caught in the middle.
ConnexPay enables agents to remain the merchant of record, and so keep control of the transaction, but also to retain their chargeback rights for the payments they make to suppliers.
The system is already being used by many of the large travel players in the US, particularly those in the ecommerce sector.
The system does not allow agents to hold on to supplier cash, as is traditionally the case, but it does give the instant access to their profit from each transaction, while the supplier can access its money.
Kaufman said the reduced risk means that agents using ConnexPay are able to reduce their banking and transaction fees because the banks are less exposed if the agent goes out of business.
“ConnexPay is the only company that has truly combined the two sides of the payments process into one process.
“Many agents use funds they have collected on behalf of suppliers for other purposes like marketing but that model has been exposed by the pandemic.
“Our clients act as the merchant of record so they are in charge of issuing refunds and do not rely on anyone else.
“At the same time we provide them with the ability to make the payment to the supplier in a seamless process so you don’t get into the reconciliation and cashflow problem.
“We give companies immediate access to their money. You can pay the airline or hotel with the virtual card and if they fail you maintain chargeback rights to get the money back.
“It’s consumer friendly, it’s agency friendly and to be quite honest it’s safer for all parties.”
Kaufman said for 40 years the payments acceptance and card issuing processes have been built separately and this has resulted in a legacy system for travel firms.
He said pre-pandemic there was not such a need to focus on addressing this because firms had access to sufficient cashflow.
Many intermediaries were also being expected to pay suppliers in ways other than by card, like electronic transfer, but COVID-19 has exposed the risk associated with that.
Kaufman said although firms loose out on cashflow, because ConnexPay allows instant access to their margin on transactions this offsets the usual delay in accessing funds in the banking system.
“We typically find agencies are open to change because we solve that three or four day gap for them and give them their profit margin immediately.
“This is better for the traveller, better for the agencies and I would argue better for the supplier because although they might have a slightly higher fee taking a B2B payment, it’s a cleaner process.
“They do not have to deal with chargebacks. The travel agency deals with the consumer interaction, so that benefits both parties.”
There is the possibility that new regulations could soon force firms to hold customer money in ESCRO accounts or trusts, as has happened in Canada, added Kaufman.
Because the ConnexPay process connects the transaction paid by the customer to the agent and the agent to the supplier the risk to banks is diminished and it passes that saving on.
The firm does not make money on card acceptance but derives its income from card issuing, retaining a portion of bank interchange fees and rebating the rest to clients.
Kaufman said the firm is “expediting” its entry into the UK and Europe because its big clients are global players and want to use the system in other markets.
“They have been really demanding we expand in overseas markets quickly,” he said. “We have a close relationship with Mastercard and they have stepped up so we are ready to go.
“Europe is certainly a market we have been wanting to enter from day one. We think it’s a product that will serve those markets well.
“Like any new company we ended up focusing on other things, but the pandemic has forced us to get more serious about international expansion.”