By Mike Parkinson, Vice President Airlines eCommerce at Worldpay
The travel and airline industries have had to run in order to stand still in recent years.
Travel and tourism’s contribution to the world economy will grow by 3.6% in 2014 to $7.3 trillion and keeping up with the competition while meeting growing demand will often require an all-out sprint.
To get ahead, airlines and travel companies are focussing heavily on giving customers more choice when it comes to planning and paying for their trips.
Enter Alternative Payment Methods (APMs).
Merchants across a number of other sectors are supporting growing consumer demand for alternative payments and now the airline and travel sector are considering how to implement APMs to best serve their own customers.
Consumer demand for more choice is certainly strong. A recent report suggests alternative payments will account for 59% of all global transactions by 2017.
The opportunity for airlines has not gone unnoticed either; 88% say APMs will be critical to their revenue growth, due largely to the fact that these address customer expectations for greater flexibility in payment options.
The market for travel is also growing quickly.
While competition is increasingly tough – driven in part by the mass deregulation of routes and rise of new lowcost airlines – the fall in airfares has seen global passenger demand soar past 3.3 billion people in 2014, an increase of 170 million travellers compared with the previous year .
For airlines and travel merchants alike, allowing customers to pay via mobile, eWallet, direct debit, and other forms of alternative payment will allow them to reach a more global customer base.
People in different countries prefer to pay for travel in different ways, and an infrastructure that supports their method of choice will be crucial to winning their business.
Given the rising popularity of APMs in emerging economies and the BRIC nations , it’s hardly surprising that growth-oriented airlines cite cross-border expansion plans as a principal motivator behind APM adoption.
A reality check
Despite the promise they hold, however, alternative payments are still in their infancy across the industry. The relatively complex infrastructure many established airlines have in place has made implementation a challenge.
Integrating APMs with aging, fragmented legacy systems is neither simple nor cheap, and some companies are waiting to implement the technology as part of a wider scale overhaul of their systems to avoid these issues.
Tellingly, well-resourced carriers that are not burdened by legacy issues and run on new technology platforms have been quick to support APMs, and have managed to do so with minimal friction.
The alternative payments landscape can also be daunting in scope. There are over 300 types of alternative payments available globally, and not all of them are pertinent to every airline and travel company.
For example, more than twice as many consumers in Africa make online transactions using non-card methods than in the US and Canada. A one-size-fits-all solution is therefore of little value to the cost-conscious business.
Rather than attempting to support every payment method available, airlines and travel companies will want to focus their time and money on supporting those that that are most relevant to their customers.
This measured approach will be simpler to implement in the short term, and easier to build upon as the range of APMs continues to expand.
Building on strong foundations
The truth is that the potential value of APMs to airlines and travel companies has now been proven, and in many regions the foundations required for large-scale adoption are already in place. What remains to be seen is how quick the transition will be.
In Europe, payment methods are built on the back of a robust banking infrastructure with an extensive user-base. This banking system integrates well with the continent’s payment providers, and is primed to support automated payments.
The stage is therefore set for airlines and travel companies to take on APMs; it now falls to them to decide when they are ready to jump on board.
Shifting over to Asia, airlines in the region have seen some success by offering customers eWallet services to pay for airfare and travel, adding value and convenience to the payments experience.
This positive response could largely be due to the device-led boom in countries such as China, where smartphones have become the preferred platform for internet commerce.
In addition, the country’s middle class continues to embrace air travel in favour of more traditional transport modes such as trains and buses.
The mobile trend is not limited to China. The demand for a simpler, more convenient payments experience is fuelling enthusiasm for mobile booking around the world.
At the same time, younger generations are increasingly turning to their smartphones to make online purchases. These trends were recently underlined by the announcement Booking.com that it processed 100,000 mobile transactions globally on two separate days in 2014 .
For now, however, consumer demand for mobile transactions and most other forms of alternate payments is outpacing the response by the airline and travel industries.
The impetus for airlines and travel companies is clear, but until they adopt a new way of working these organisations will not be in a position to effectively meet their customers’ needs.
And with upstarts continuing to enter the travel market unencumbered by legacy issues and keen to differentiate themselves, established players will need to accelerate this process to keep up.