With spring just around the corner, online travel agencies (OTAs) across the globe will start ramping up their operations to focus of the lucrative summer holiday market. OTAs have been taking advantage of a shift in consumer habits, with holidaymakers increasingly less likely to book on the high street and instead pour hours into sourcing deals online.
By 2023, the global online travel market is set to top a trillion dollars in revenue, underlining the influence of this burgeoning industry on the whole travel sector. This growth has been fueled by growing demand from emerging and developing nations where improved internet penetration has boosted the demand for international travel1.
However, this growth has not come without its challenges. Therefore, OTAs need to develop a coherent payment strategy to mitigate the risks and daily challenges they face.
What is an Online Travel Agency (OTA)?
Online travel agencies, or OTAs, act as an online travel intermediary, allowing customers to book flights, hotels, transfers, package deals, and even travel experiences. Booking.com, Priceline, Expedia, and Trivago are all examples of leading OTAs.
They usually have three distinct different modes of operation, often adopting a hybrid business model of all three to increase the number of revenue streams coming into the business.
The first model is the most traditional, which is booking revenue. Each OTA receives a commission from a travel provider when a customer purchases one of their holidays through their website, either transparently, or privately.
Next, you have the broader category of merchant revenue, whereby the customer pays the OTAs in exchange for a product or service. This revenue stream has two separate elements, the first of which is where an OTA buys a product (a package holiday for example) from a travel provider and then resells it on to the end customer for a profit.
The second method is delivered through a marketplace between travel providers and end consumers. The OTA then receives a direct fee from the consumer or travel provider, or both, for facilitating the deal.
What Are the Main Payment Challenges OTAs Face?
As with any business, there are several payment challenges that OTAs face on a regular basis. However, some are particularly prevalent within the online travel industry.
Payment issues surrounding serving multiple countries simultaneously
Perhaps the issues surrounding localisation of payments is no more apparent than in the case of OTAs. To be successful online, agencies need to operate in as many regional markets as possible. But without the ability to both display and accept local currencies, conversions fall through the floor.
Furthermore, the currency challenge is exacerbated by the fact that different geographical areas prefer different methods of payment. For instance, Asian territories much prefer the use of e-wallets, whereas American consumers prefer to buy their holidays with the built-in protection of credit cards.
The increasing cost of remaining compliant
As the anti-money laundering laws become stricter, and the chances of a data breach rise by the day, the compliance commitments attached to international payments are becoming progressively more demanding for OTAs.
Not only do these companies need to invest in becoming PCI and PSD2-compliant, but they also need to dedicate considerable time and resources into KYC checks to verify their customers. These checks can be cumbersome and time-consuming, which is why they have such a crippling effect on conversions.
Increases cases of fraud
Fraud is gradually eroding the profit margins of online travel brokers, and more than $20 billion in OTA revenue is predicted to be lost during 2020 as a result of fraudulent transactions2.
This online industry is particularly susceptible to chargeback fraud. One major issue associated with the OTA business model is that there is a long time between payment and delivery of the product or service.
Customers are often quick to issue chargebacks if they’ve had a poor experience (such as wrong flight details, poor hotel experience, etc.) rather than request refunds. In many cases this occurs several months after making the booking.
In other instances, fraudsters pay the OTA for a holiday deal to resell to customers before issuing a chargeback on their initial purchase. Account takeover fraud (ATO) is also an issue, with saved payment details providing easy access for criminals to book themselves travel deals fraudulently.
As a result of these activities, acquiring banks are left on the hook for thousands for months at a time, and OTAs suffer in the form of higher processing fees as a result of their increased fraud risk.
How to Resolve OTA-Specific Payment Challenges?
Despite the challenges OTAs face when taking and handling payments online, there are plenty of steps that can be made to mitigate the payment risks associated with the online travel industry.
Increase payment conversions by dynamically displaying local currencies and preferred payment methods
It used to be the case that website developers had to build complicated applications to satisfy the currency, payment, and local acquirer preferences of each region, but this is no longer the case.
OTAs can invest in one-stop checkout solutions that provide dynamic data in over 150 languages and currencies. With providers such as SafeCharge offering over 250 alternative payment methods, there’s very little chance of losing payment due to geographical payment preferences. The ease at which these solutions can be added to existing OTA websites means there’s little reason to not offering several locally-denominated payment options at the checkout.
Minimise compliance risk with by handing off PCI and KYC compliance
Data breaches are a serious threat, and that threat only increases when talking about extremely valuable payments data. Therefore, instead of trying to spend significant resources on developing your own PCI-compliant payments page, it makes sense to hand over the responsibility to a trusted third-party provider.
Most reputable payment gateways offer APIs that give websites full control of the UX of the webpages, but hands over the PCI-compliance to the payment services provider. Better still, you can reap the advantages of their tokenisation technology to reduce the risk of a breach.
Lastly, KYC checks no longer have to be burdensome, with seamless software solutions providing the answer to compliance with anti-money-laundering laws and providing better protection against fraud.
Use artificially intelligent tools to beat fraud
The threat of fraud isn’t going to go away anytime soon, but the technology designed to combat it is continuously evolving and improving. For example, by making use of the latest SafeCharge’s 3DS2-compliant software, OTAs can intelligently set over 200 customizable rules for accepting transactions.
With machine learning, algorithms can spot newly-developed fraud patterns, blocking them in real-time and reducing the number of false positives. Better still, SafeCharge’s fraud prevention features are acquirer agnostic, leading to higher approval rates.
Lastly, with superior reporting, detailed user data, and partnerships to all of the biggest card schemes, the very best payment services providers give you all of the data you need to overcome chargebacks.
Learn How to Overcome OTA Payment Challenges From our Experts
The payments world is ever-changing. OTAs of all sizes need to stay on top of the latest trends to maintain profitability in what is an extremely competitive market. That’s why the leading members of our travel team, including myself, are always available to discuss your business challenges and the best solutions to resolve them.
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