As we enter a new year, the
travel industry continues to regain health as consumers make up for lost
vacations and corporate travel reignites.
According to estimates from Mastercard Economics Institute based on IATA data,
about 1.5 billion more people booked flights in 2022, compared with 2021, and
online bookings are expected to reach pre-pandemic levels in 2023.
Some regions — like North America and Latin America — have already surpassed
2019 (pre-pandemic) levels, according to Mastercard Global Insights data.
The industry is also experiencing high volumes of “make-up” travel as consumers
use their excess savings to plan elaborate trips after two years of
lockdowns.
Increasingly, consumers are turning to travel agencies for
logistical support. Agents offer the accountability and ease of a single
point-of-contact — saving consumers time and money and providing peace of mind.
Online travel agencies (OTAs) are seeing the greatest bump. According to data from Phocuswright and Mastercard, U.S.
domestic travelers found that 57% were more likely to book their travel through
an OTA since the pandemic — with millennial and Gen X travelers the most
enthusiastic.
This trend is reflected in double-digit growth for U.S. OTAs, as they posted $65.2 billion in gross bookings in 2021 and a
compound annual growth rate of 20% from 2020–2022.
OTAs now own approximately 40% of the global travel space, becoming an engine
of growth for airlines, hotels, tour operators, railways, cruise lines and
their other partners. Overall, the OTA market is anticipated to generate revenues
of around $1.5 trillion by 2027.
Travel agencies are re-booting B2B payment practices
In the past, most travel agencies acted as intermediaries,
relaying the consumer’s payment information to the airlines, hotels, tour
operators and small suppliers that comprise an individual’s itinerary. But as
the network of suppliers expands, this “pass-through” model has become riskier
and more frustrating for agencies and consumers alike.
That’s why a growing number of travel agencies are adopting the merchant of
record (MoR) model. As the MoR, the travel agency collects the customer’s
payments for all services booked through them, authorizes the transactions and
then pays the individual suppliers tied to the booking.
The MoR model also enables travel agencies to provide consumers with payment
options, such as buy now pay later installment methods.
The migration from the pass-through model to the MoR model is massive.
According to Phocuswright and Mastercard data, travel agents acting as MoRs in
the U.S. posted a 43% CAGR from 2020 to 2022 — a growth rate more than two times
higher than that of the overall OTA market (20% CAGR).
Virtual cards power the MoR model and agency growth
The post-COVID travel landscape has exacerbated the negative
impact of manual travel payment processes, including wire transfer and check.
Travel agencies cannot afford the operational and financial drag of long
settlement periods, burdensome administrative processes and lack of financial
protection for themselves and their customers.
For travel agencies to overcome these limitations and reap the full benefits of
being the merchant of record, digitization of B2B travel payments with virtual
cards is the next step. Virtual card numbers, or VCNs, are digitally generated,
PCI-compliant, single-use card numbers that are accepted everywhere traditional
payment cards are.
Virtual cards provide a unique, traceable link between booking and associated
payments to third-party suppliers. Travel agencies and their suppliers can
easily track and reconcile payments, while benefiting from other virtual card
benefits such as flexible pricing, financing options and card payment
guarantees. The result is a more streamlined and secure payment experience for
travel agencies and their customers, as well as travel suppliers.
For example, Jane is traveling to Paris and her itinerary includes plane
tickets, a hotel booking, car rental and tour reservations. Because she is
working with a travel agent whose company has a virtual card program, Jane only
has to make one payment to the travel agency for all her bookings.
However, different VCNs are generated between the agency and the different
suppliers for each itinerary item, enabling all parties to track payments in
the event of cancellations, chargebacks or adjustments.
Three considerations in choosing a B2B payment solution
Rebooting B2B travel payment strategies to meet the challenges
of the new travel landscape can seem daunting.
The path forward for most travel agencies is to integrate single-point control
and digitization into their operations by transitioning to the merchant of
record model, powered by virtual card technology. Some considerations as you
embark on that journey:
- Payments matter, top- to bottom-line. Your B2B payments program should be at the core of your business, supporting your objectives. If payments are purely a functional endpoint, you are missing an opportunity. Look for payments experts who can help you build an operationally resilient payment structure that will boost revenue growth and protect your valued relationships with customers and suppliers around the globe.
- Not all VCN solutions are equal. Virtual cards are the future of travel payments, advancing the merchant of record payment model and delivering benefits across the travel value chain. Mastercard has taken the proven technology and adapted it to the travel industry, based on sector expertise and feedback. Through the Mastercard Wholesale Program we have created a solution that meets the specific needs of the sector, and we continue to evolve it based on the market landscape.
- There’s power in
partnership. The travel ecosystem has never been more connected,
and the future health of the sector relies on mutual growth. Your travel
payments partner should offer products and services that foster greater
collaboration among travel buyers, suppliers, financial partners and
technology partners. By working together, the sector will realize
sustainable and inclusive growth while delivering to the evolving needs of
travelers.About the author...Chiara Quaia is senior vice president for travel industries at Mastercard.Contact Mastercard’s B2B Travel team at enterprisepartnerships@mastercard.com or visit mastercard.com/wholesaleprogram to learn how Mastercard is powering the travel economy, and how digital payment solutions could benefit your business.