Q&A: Payment complexities in the growing tours and activities sector

The tours and activities sector of travel is huge and getting bigger every day, as travelers – particularly younger generations – prioritize what they do and see during their trips.

Phocuswright estimates the travel activities market will reach $183 billion globally by 2020.

And brands such as Expedia, Booking, TripAdvisor and Airbnb, as well as traditional hospitality and travel package companies are making investments to capture a piece of this market.

One of the challenges in this space relates to payments – how they are processed and reconciled – particularly as it relates to the long-tail of suppliers that may lack the time and resources to manage the inevitable complexities.

To understand some of these issues, we talked to Colin Smyth, travel industry director at Flywire, an international payment solutions provider that works with online travel agencies such as Expedia and tour operators including White Desert, Northern Escape and Tropical Birding.

What makes the tours and activities sector unique when it comes to payments?

You look out and see the big players now with Trip and Airbnb and everyone moving into experiences and moving into this idea of the more experiential travel the better. Naturally that has major challenges. You are dealing with operators spread all over the world and in pretty exotic places.

You think of Asia Pacific for example - places where people have bucket list travel items - payment in and out of those countries can be a little tricky. You think about a tour operator in Thailand, a tour operator in Malaysia - they want to get paid in their local currency but the guest probably prefers to pay in their local currency.

So what starts to happen there is this kind of tension that exists with the actual invoice or booking of the trip. Because the operator they just want to go and do more tours, or they want to get up on the mountain more, or they want to get more boats in the water.

They don’t want to be in the payment space, they don’t want to have to understand the difference in pricing between PayPal and WorldPay and First Data, or what do those merchant costs look like, in addition to what currency should we go out in, what currency should we hold and how do we manage all that.

That gets really complex as they try to scale their business and try to take on more experiences.

Tell us more about the issues surrounding local currencies.

We have a customer in British Columbia - a heli-skiing company - they were asking guests to force a conversion into Canadian dollars. What typically happens there... that credit card transaction then is being charged on both sides of the equation.

The operator is invoicing in Canadian dollar, they are being charged a conversion fee to absorb that cost of transaction. In addition, that guest who is the United States, Singapore, Japan wherever is also going to pay for that cost. That’s a really painful experience.

And especially as more of these companies are existing in this adventure travel space, the customer experience is super important.

We have customers of ours that its six figures to go on a trip with them, so you’d better make sure that the experience from start to finish is really good.

And if the payment part is kind of cumbersome and painful, that’s just one more reason for why that person may not rebook.

So how do you solve that?

We say, for example, to an operator in Canada, you keep billing in Canadian dollars, don’t even worry about what the Canadian dollar will do against the Euro or the U.S. dollar, let us take on that... and then we’re going to present a local option to the guest... and that’s going to allow that transaction to be localized on both sides.

That’s a unique experience that’s not occurring traditionally today.

What are some of the toughest markets for payments related to tours and activities?

In Asia pacific it gets a little challenging. You think about all the complexities in China in particular. You look at Thailand, Malaysia. Also Latin America.

The complexity of the currencies themselves - how quickly they are changing. You look at the U.S. dollar versus Malaysia dollar on a daily basis, and it’s a very rapidly changing market. And therefore it’s also hard to get that local dollar in and out.

So what we are seeing is the OTAs are having to force the U.S. dollar onto the operators, and that’s a really painful experience to the operators because they need to live and operate in their local currency.

And yet potentially their largest channel partnership is forcing that U.S. dollar. So then they are having to go to their bank to convert that... I think only builds that tension a little more between the operator and OTA.

We all are seeing that friction that’s building between those two groups, and I think this is one more thing that’s maybe starting to aggravate that experience.

Is fraud a big issue in this space?

Friendly fraud is the biggest worry from an operator side. The idea of ‘We didn’t like the tour” or those types of things are what we hear from our operators.

We try to work with them to make sure their terms and conditions are clearly stated not only on their invoice but also on their website. Also in the space we are spending more time in, which is this kind of luxury adventure travel, they will work with you on any kind of rebooking.

We see the risk of fraud occurring more in that longer tail – walking tour, bike tour, $20-30-a-day kind of experiences.

And what about the role of e-wallets?

It comes back to the idea of guest experience, the local payment option. The idea is that If I’m coming from China I’ll probably want to pay on Alipay or through UnionPay.

The operators don’t want to be in the payment space and they don’t want to worry about what’s around the next corner, because that’s where it gets complicated.

If you are an operator or an OTA, you have to have individual relationships with your credit card processors and all of the alternative payment methods, whether that be PayPal, Alipay, UnionPay, any of these. It’s one more thing to manage and one more expense potentially on your bottom line.