Q&A: Western Union on a complex but manageable world of currencies and payments

Western Union is one of the most iconic financial services brands in the world, with a vast digital footprint, a retail network of over half a million agent locations and over $300 billion moved last year across 130 currencies.

Stretching back to the mid-1800s, the company has built one of the world’s most robust ecosystems for the movement of money between businesses and individuals.

PhocusWire spoke to Jonathan Lee, Western Union's director for enterprise payment partnerships, to learn more about its analysis and views on the constantly evolving world of currencies and payments in the travel industry.

Travelers from different parts of the world have varying payment preferences, based on their ideas and needs about what is most convenient. Can you give us some examples?

Payment is deeply personal because money is deeply personal.

For online travel agencies, hotels and other providers of travel related products and services, getting the payment experience “right” is especially critical because travel purchases can often be cross-border and cross-currency, which add another layer of complexity to a process that is already quite complicated.

What one consumer considers to be a convenient payment method may not be perceived that way by someone else.

The payment industry has responded to consumer preferences by supplying numerous different payment options – by type of purchase, industry, region, transaction size, and more. For this reason, deciding what payment method to offer to your customers can become a daunting exercise.

Most North American consumers like to use credit cards or debit cards for their purchases. Americans, in particular, love getting reward points or cashback from their credit cards. Consumers are increasingly adopting digital payments, but they still use credit cards for nearly 75% of online transactions .

That said, there are always exceptions. Not every American has a credit card. A recent survey showed that nearly 30% of U.S. adults do not own a credit card.

According to another study , only 37% millennials carry plastic and a Federal Reserve survey revealed that the 18 to 24 demographic prefers to pay with cash. But more on payment preferences later.

Europe has a more diverse payment market than North America. Europeans are increasingly adopting credit cards, but many consumers still prefer paying with digital payment methods or debit cards. And for some, cash is still king.

For example, in the Netherlands, online shoppers can use an inter-bank system that links most Dutch banks to pay directly and instantly with their bank account. In Spain, while the majority of the adult population has a credit card, cash is the most preferred way of paying and prepaid cards are also becoming popular.

Asia is just as fragmented as Europe, if not more so, when it comes to payment methods.

Japan is a cash-first country, which may surprise some people. While Japanese consumers have credit cards and debit cards and use them for online transactions, they also like to pay using cash-on-delivery or complete their purchase with cash at a convenience store.

Cash is also king in Indonesia, where credit card and debit card usage is low and many consumers are still unbanked. However, as is common in many rapidly growing economies, mobile banking is gaining traction among consumers.

In an economy where cash is the dominant form of payment, e-commerce sites must enable users to pay with cash.

For example, Amazon works with Western Union specifically for in-person, cross-border payments. With Amazon’s global scale and Western Union’s worldwide network of agents, the close partnership enables consumers to conveniently shop globally and pay locally in their own currency.

In South America, many changes are taking place as more consumers now have bank accounts than ever before and the number of online shoppers keeps climbing.

For example, credit cards have become the preferred payment method in Brazil, but other forms of local payments, such as Boleto Bancário (a cash-based, in-person payment method), is also popular with consumers who have yet to make the transition to credit cards or digital payments.

In Argentina, like its neighbor Brazil, consumers prefer to use credit cards for e-commerce payments. However, as is the case with many local bank-issued cards, credit cards often do not support cross-border purchases. This can be a major problem for global merchants wishing to reach shoppers around the world.

Moreover, almost one in five online purchases in Argentina go through a local payment network, such as PagoFacil and Rapipago. Meanwhile, unlike parts of Europe and Asia, bank transfer and digital wallets only represent a small percentage of online spending in Argentina.

We can examine different payment preferences country-by-country, but what should be clear by now is that there is no one-size-fits-all solution, even within the same country.

What are some of the complexities that face a merchant trying to take payments from travelers across borders and currencies?

Every country has its own unique regulations and set of reporting requirements regarding cross-border payments.

Providers of travel services and products who, by the nature of their business accept payments from multiple countries in various currencies, need to make sure that they are familiar with the legal requirements.

For example, some countries might limit the amount of certain currency that can be sent outside of their borders.

Also, the purpose of those funds is just as important as the amount.

Is the traveler making a direct purchase? Or are they topping up a general digital wallet that can support future purchases and transmission of funds to other wallet holders? Different use cases may require different licenses.

As mentioned before, regulatory requirements play an important role in payments, especially for cross-border and cross-currency transactions. A merchant that does not capture appropriate consumer data, for example, could be exposing itself to regulatory risks.

It’s very important to make sure your payment partner is thoroughly versed in these regulations and understands your business to tell you what to look out for.

What are some of the challenges that merchants face when they are trying to accept all these different payment options?

It’s not easy to set up all the different options, which is why there are now many payment aggregators offering payment solutions for e-commerce merchants.

Some of them offer a wide range of payment methods across many geographies and some specialize in alternative payments, such as cash, mobile carrier top-ups, and bank transfers. We are starting to see even more specialized payment providers for mobile wallets and cryptocurrency.

It can be quite overwhelming for a global merchant to consider all the possible payment options. One obvious challenge is integration. Also, manoeuvring through the complexities of local and international AML and compliance requirements and foreign exchange can be quite challenging without proper guidance.

This is why Western Union invests significant resources to ensure that we meet all regulatory requirements for ourselves and for our clients around the world.

Will a customer sometimes completely abandon a purchase based on whether their preferred payment method is available?

Absolutely. Even if travelers want to book from your site, they may not be able to if you do not give them the payment method they prefer to use.

For instance, many travelers abandon a purchase simply because there is no option to pay in their home currency. Some travelers are unable to complete a purchase because their local credit cards do not support international payments.

Estimates vary, but 60% to 75% of online carts are abandoned . What should alarm the decision makers in the travel and hospitality industry is that the cart abandonment rate for OTAs, airlines, tour operators and hotels is much higher than that of other industries.

By one estimate , about 80% of travel bookings are never finished. To be fair, there are other factors contributing to the high abandonment rates, such as the prevalence of comparison-shopping. But what this means that it's important to plug any potential leaks in your booking funnel to deliver the best user experience and maximize conversion.

One study of online shoppers found that one in three customers outside the U.S. would not finish the transaction if the price was only shown in U.S. dollars. This could be a common scenario in cross-border and cross-currency hotel or tour booking.

Furthermore, some studies also cite lack of trust and unreliability of payment methods as major factors of cart abandonment.

According to a survey in 2017, various payment-related reasons, such as credit cards being declined, not enough payment options, or not being comfortable with giving out credit card information contributed to a cart abandonment rate of nearly 30% .

What does this all mean? Payment experience matters, especially for the travel and hospitality industry.

In addition to accepting payments from bookers, travel sites also need a way to pay suppliers. With the rise of vacation rentals and the increasing popularity of local tours and activities, how should the travel industry think about making disbursements to small, sometimes family-owned, suppliers around the world?

So far, we have discussed the C2B aspect of payment, but B2C is just as important in the travel industry. When it comes to “getting paid”, consumers and businesses certainly have their preferences.

We know this because Western Union works with multinational companies that rely on us for in-person cash disbursements and account transfers. In fact, Western Union enables one online vacation rental provider to distribute funds to their hosts around the world through our agent locations.

Providing suppliers with payout options that meet their needs can be just as important as offering bookers with pay-in methods they prefer.

For example, a tour agency in a part of the world where there is still a large unbanked population might not be able to easily accept a bank transfer for bookings it received from a foreign tour booking site.

For that agency, having an in-person disbursement option might be the only way to receive payment.

Whether offering an in-person payment or an account transfer, a travel site should always consider the needs of its suppliers. What is their payout preference? In what currency do they want to receive the funds? How quickly do they require payment? What is the typical size of the disbursement?

Those questions and more should determine the payout strategy for the travel site.

Is there anything else that you wish to share with the readers from the travel industry about online payments

The big takeaway is that online payments for travel services are critical and becoming more complicated.

Western Union’s advice for providers of travel-related services and products is the same as our advice for any e-commerce marketplaces: Select the best-in-class payment solution provider for the region and for the payment method most likely to be preferred by your user.

Also, don’t assume that your customers in the same region are homogenous when it comes to payment preferences.

Not all U.S. travelers may want to book their hotel room with a credit card and not all Japanese travelers may want to pay for their flights in person with cash the way they do for their other online purchases.

In fact, we recently expanded our partnership with Amazon to include the U.S., which means U.S.-based Amazon users can now pay for their purchases in person using cash at a Western Union location.

And don’t forget that things change. “Future-proofing” your choice of payment providers, by making sure your selection has the scale and the flexibility to adapt to whatever comes next, should be among the most important factors in your decision.

Running a business that serves customers from all over the world is difficult enough without having to worry about your supporting infrastructure services.

The right payment partner doesn’t just process your payments, they free you up to think about other ways to improve your business and stay competitive.