Fintech Taking Flight: The World of Travel Payments

We caught up with travel payments strategist and expert, Paul van Alfen from Up In The Air to learn more about the world of travel payments – and let us tell you … it’s not your everyday checkout process. Booking a journey often involves paying months in advance for services delivered later, introducing significant credit risk and necessitating sophisticated payment solutions. For fintech innovators operating in or adjacent to this sector, understanding these nuances is crucial for developing effective payment strategies and technologies.

Travel Payments: A Whole Different Ballgame

When you book travel, you usually pay way before you actually get on that plane or check into that hotel. That gap between payment and service (sometimes months apart) creates risk. What happens if the airline goes under, or the hotel suddenly closes? Someone has to manage that risk – and that’s where fintech innovation becomes a game changer.

And it’s not just about you paying the airline directly. Over half the bookings out there go through travel agencies or online platforms. These middlemen hold your money in secure wallets until it’s time to pay the suppliers. Think of it like a busy metro map with tons of lines and stops - lots of players making sure your money gets to the right place safely and on time.

What Payments Look Like Around the World

Payment preferences differ wildly by region and market. In North America, credit cards rule the roost. But hop over to Brazil, and you might see folks paying in installments or cash. Southeast Asia? Lots of specialized local e-wallets. Still, the big global card networks – Visa, Mastercard, and the like – handle about 85-90% of travel payments worldwide. So, while there’s variety, global card networks still process roughly 85-90% of travel payments worldwide.

Why Travel Payments Aren’t Risk-Free

Travel is high-risk business: unlike retail, payments are made upfront but services are provided months later, which can expose merchants and payment processors to credit and fraud risks. Airline bankruptcies, insolvencies, and cancellations pose particular challenges, making consumer protection and payment dispute processes critical.

This means travel businesses and payment processors need smart systems to protect both customers and themselves. And with legacy tech dating back decades, it’s a challenge to keep up with modern payment expectations without breaking the bank. Payment gateways have evolved into complex orchestration platforms enabling dynamic routing across multiple acquirers and payment methods to optimize costs and conversion rates while supporting business continuity amidst disruptions.

Emerging Trends

One of the fastest-growing payment trends in travel is Buy Now, Pay Later (BNPL). Booking a pricey trip and paying overtime can make premium options more accessible to travelers. Big card companies have jumped on this trend too, offering their own BNPL programs.

Cryptocurrency and stablecoins, while still experimental in travel, hold promise for addressing currency volatility and cross-border payment challenges, especially in regions with unstable local currencies. Almost like a hybrid highway, travel businesses want the flexibility of new tech without risking too much. Early adoption examples exist, but full integration remains on the horizon, requiring regulatory clarity and industry-wide standards.

AI agents that can autonomously search, book, and pay for travel on behalf of users represent another frontier. While the technology is developing rapidly, security and tech integration still have a few bumps to iron around authentication, security, and integration with existing payment systems.

Paul van Alfen, Up In The Air

Paul’s Strategic Takeaways for Fintechs in Travel Payments

• Understand the complexity: travel payments involve multiple stakeholders and payment flows - understanding them helps you build better solutions.

• Adopt flexible payment orchestration: multi-acquirer and multi-channel strategies reduce risk and improve business continuity.

• Explore local payment preferences: tailor payment options to regional preferences to maximize acceptance and conversion.

• Keep an eye on emerging tech like BNPL and stablecoins – but be ready to manage risks and regulations.

• Stay curious: the travel payments landscape evolves quickly with innovations in blockchain, AI, and fintech partnerships.

Want a deeper dive? Watch the webinar recording with Paul van Alfen here.

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