by Anth Hynes
In the past, the travel industry used the agency model for B2B payments – where the card details for customers who purchase airline tickets, were passed onto the airline for processing. However, escalating payment fraud and demand for a better customer experience have placed that model under pressure.
The merchant model in B2B travel payments
Successful large travel agents responded over the past two years to changing customer and industry expectations by moving to a merchant model distribution strategy, where agencies control inbound customer payments and pay travel suppliers in a streamlined process. In this way, agents leverage the secure, flexible technology that has driven the evolution of B2B travel payments.
Under this model, the travel agent collects one single payment from the customer and then makes a separate payment with a unique virtual ID to each airline or supplier. This means the travel agent continues to be an agent for airlines and also becomes the merchant of record for the inbound customer payment. The travel agent manages all costs and risks and can invest in the latest technology to provide secure and seamless payments, including accepting customers’ preferred payment methods.
I was happy to join a panel discussion at the 2020 Airline & Travel B2B Payments Summit Special in London, sharing thoughts on the growing shift of large travel agents adopting the merchant model. There are so many benefits of using this model – not just for travel agents but everyone in the travel value chain, including airlines and the end traveler.
To summarize my takeaways from the panel, the benefits of operating a merchant model with virtual payments are:
- Reduce costs: Travel agents continue to absorb the cost of customer payment methods, including adding new payment methods and costs related to fraud.
- Eliminate chargebacks, fraud, and admin costs: Virtual payments can protect airlines from customer payment fraud, benefiting the entire value chain. This also helps reduce financial and administrative costs.
- Guaranteed secure payments: Airlines receive a guaranteed payment for each ticket issued via systems and processes already used, which adds an additional layer of protection for the business against fraud and risk.
- Improve cash flow: Airlines are paid faster, with virtual payments facilitating time to settlement in just a few days.
- Seamless payment experience: Since the travel agent controls the customer interaction from end-to-end, the payment process is much more seamless and delivers a better customer experience, helping garner customer loyalty.
- Greater reach for sales: Travel agents can accept customers’ preferred forms of payment and reduce distribution costs, which can help lead to an increase in sales since they can pay how they want to.
Choosing virtual payments: Why alternative models don’t work
Most alternative models have significant shortcomings. For example, some costs and complexities can be hidden, including indirect costs. For airlines, these can stem from settlement delays, impacts of fraud, increased customer payment costs, risks from agency default, unnecessary friction in customer experience, and distribution relationships. In addition, there are constrained sales and added operational costs and complexity, which is a lot to deal with for a sector that’s already under significant pressure.
The future of the merchant model in the travel industry
In an increasingly competitive and pressured industry, the advantages are clear. With a travel agent acting as a merchant, this model benefits all parties in the value chain. It completely protects airlines from the costs and risks of exposure to fraud and delivers a seamless payment experience for their customers.
Payment products for the travel industry are wide-ranging, varied, and can be physical or virtual. Travelers used to shopping online expect a payment experience that’s easy, seamless, and offers choice as well as reassurance that purchases are protected. This is the travel shopping experience that agents must deliver. Agents and suppliers need to work together toward B2B travel payment strategies that reflect the commercial needs of both parties, and serve their common customer – the traveler.