Four trends shaping travel fintech in 2022

While the travel industry has been gradually recovering from the COVID-19 pandemic, new payments trends have been quietly developing behind the scenes. The increasing convergence of fintech and travel is undeniably one of the most significant and interesting changes we’ve seen recently in travel tech.

Whether it is new payment methods being offered by travel providers, advances in how money moves between industry participants or travel companies offering fully fledged fintech products, change is happening at a rapid pace. Here are our predictions for the four trends shaping travel fintech next year.

Open banking creates new B2B payment options

One of the most significant changes happening in financial services is open banking. In short, this change means that people can choose to share their banking data with third-party firms offering value-added services. Open banking also broadens the scope for the type of organization that can "interact" with a bank account. For example, payment initiation service providers (PISPs) can initiate a transaction from a personal or business back account, without the account owner needing to do so themselves.

It’s this change that will soon present new choices for travel sellers paying out to providers like airlines. Today, sellers can payout with industry settlement schemes, cards or virtual cards. Open banking introduces a fourth major B2B payment method in travel, direct bank-to-bank payments between seller and provider. Soon sellers will be able make use of PISPs to pay from their bank account using the established banking rails, which are both cost effective and trusted. So does this mean all B2B payout volumes will shift to bank-to-bank in travel?

We do believe we will see some companies "go big" on bank-to-bank. It’s particularly well suited to sellers and providers that do significant business together, where the economies of scale are attractive and trust is already established. The settlement is rapid and reliable. But it isn’t appropriate for every payment.

However, we do feel any talk of "the death of cards" is premature. That’s because the card schemes offer immediate scale and robust default protection and dispute resolution services that are essential when sellers and providers trade infrequently or haven’t established trust. Just like consumer cards, B2B card providers also offer attractive commercial terms for the payer in the form of rewards or rebate opportunities. These simply don’t apply with a bank-to-bank transaction.

Travel companies offer fintech services

The most exciting shift we’re seeing is the ability for travel companies to offer financial services to their customers. Co-branded airline cards have been successful drivers of loyalty for many years but with new embedded banking technologies the industry can begin to broaden the scope of its financial services offering.

Airlines, hotels and travel agencies are actually in a strong position to move into this high-margin space because they can adapt loyalty program to incentivize customers to use their financial services. Imagine receiving points from an airline if you choose to have your salary paid into its current account product.

Even a few years ago the complexity would have been too great for most travel firms to consider this move. However, embedded finance providers are able to offer "virtual" products that companies can easily incorporate and (subject to any regulatory restrictions) white-label, without having to become a regulated entity themselves.

For example, travelers can choose to freeze the price of a flight or hotel booking, locking in the given price, for a fee. If the price increases, the traveler still pays the locked price. If it falls, the traveler pays the new lower price. Hopper’s fintech products see a 56% average attachment rate for flight bookings, which increases to 70% when hotels are included. Hopper customers buy 1.7 of its fintech ancillaries on average, which translates to an additional $42 on top of the average flight spend of $355 – very impressive results.

As we head into 2022 it’s increasingly clear that B2B fintech in travel is about much more than simply paying out to suppliers. As travel companies begin to recognize the opportunity to grow share of wallet and deliver an improved experience, many will begin to resemble fintechs.

Buy now pay later in travel

"Buy now, pay later" (BNPL) is already a major payment method across retail. By carrying out a rapid risk scoring of the customer a merchant (or its BNPL provider) can decide to extend a line of credit, so the customer pays in several installments. For travelers, BNPL is a very smooth experience that’s quicker and easier than applying for a traditional loan.

But the concept really isn’t new. We’ve had credit cards and lay away in shops since the 1960s, however BNPL is the modern version of credit designed for the digital world. Enabling flexible payment by installments is particularly important for the travel industry at the moment because it is mainly family reunion that is driving travel demand and these trips often mean four or more people traveling, which can be expensive.

For travel merchants the real opportunity is the product upsell. If the traveler has flexible credit they can potentially afford to make a higher value purchase, or to add more ancillary services.

According to our own research with 5,000 global travelers:

• 68% said BNPL would encourage them to spend more than usual on summer travel
• 49% said they would be more likely to buy airline ancillary services if BNPL was offered

With this type of upsell potential, we believe every travel merchant will at least consider BNPL options in 2022. However, offering this type of payment method isn’t without risk. Travel companies need to consider any risk to their brand that could result from a BNPL partner offering credit aggressively to travelers that are already highly indebted. At Amadeus we are consulting with our customers to assist them with BNPL strategies that prioritize responsible lending.

Frictionless payments

When we think about how payments can truly add value for the travel industry then it’s all about removing friction - making it easier for the traveler to pay digitally, simply and quickly. That’s how we can improve traveler satisfaction to drive loyalty whilst simplifying the payment experience to drive more purchases across the entire trip.

At Amadeus we’ve done a lot of work to consider the entire traveler journey from booking, to the airport and finally the destination, and everywhere in-between. As an industry we need to create a great payment experience not just when the traveler is on our website but also when they’re actually traveling.

Several paytech innovations have become available over recent years that can be harnessed to remove friction.

• “Tokenization” enables merchants to encrypt and securely store customer payment information in their own systems for future use.
• “Merchant Initiated Transactions” mean travelers only need to authenticate once and subsequent payments can happen invisibly in the background because the merchant can re-use payment information the traveler allows them to store securely.
• “Last mile digitization” uses techniques like QR codes or “pay by link,” which are great ways to upgrade processes like chip and pin to e-commerce payments, even in traveler-present environments like the hotel reception and airport check-in.