Making the margins: how digital payments are driving efficiencies in corporate travel

Corporate travel was forcibly grounded during the pandemic, with travel management companies (TMCs) suspending operations as ‘work from home’ orders were issued by governments (and businesses) around the world. It was a challenge for even the most successful TMCs, and survival became the name of the game. Innovation and progress became secondary, until now.

As corporate travel continues its recovery, new challengers in the market are seeing opportunities to gain ground on traditional players through value added services and technologies that help them to compete on price to win new business.

The industry is ready for take-off, but expect some turbulence

Reigniting an entire industry was never going to be easy after two-year hiatus and even now, airline staff shortages, variable COVID restrictions, and ongoing fears that travel plans could be disrupted at any moment, loom large over the industry.

This uncertainty leads to complexity; and from a payments perspective, it leads to significantly more complexity. Corporate travel payments have never been simple: TMCs must handle payments to multiple third parties, often with several different airlines, trains and taxis, hotels and travel insurance brokers; and each of these third parties may take payment in different currencies and deal in foreign languages. Throw in customers that want to change or cancel their booking, and you have an administrative nightmare that costs time and money. Payments for travel services can take anywhere up to 90 days to be processed, presenting significant cash flow challenges, leading to an increased chance of a chargeback if circumstances change. Is it any wonder that 62% of travel companies reference B2B payouts as a significant pain point?

At the same time, acquiring banks, looking to protect their own assets, continue to red-flag travel payments. The traditional approach of using a credit card to book travel led to unprecedented numbers of chargeback claims during the pandemic. Consequently, in some cases acquiring banks have suspended onboarding new TMCs; they simply can’t take the losses any more. In other cases, banks are asking for holding deposits, or delaying settlement, to protect their assets. For SMEs in the travel space, this just adds to serious cash flow headaches.

Adversity breeds innovation – first stop, security

This dash for cash means that payments are a key differentiator for business success. It is more important than ever for TMCs to be paid on time, and to create accounts receivable (AR) process efficiencies that ease the day-to-day costs of running a business. Accepting commercial cards – a credit card issued by employers through which employees make business purchases – is one way to achieve this, as it enables corporate customers to pay quickly, while accessing an upfront line of credit to protect their own cash flows.

In many ways, the pandemic caused travel to go into a state of ‘active inertia’. New players came to the market fresh with modernised practices and started on level terms with the incumbents. A tech-first approach led to better margins, giving them the ability to offer competitive prices to customers.

This is achieved in part by reducing lengthy AP processes. TMCs that can accept commercial cards through a cloud-based gateway, managed by a payments processor, no longer need to commit resource to calling up and emailing customers to chase up payments, and logging invoices manually.

Another disruptive technology in this sector is what’s known as a payment link service. This is where a TMC sends a link to a customer in just seconds (via email, text or electronic invoice) which then takes them to a hosted pay page. It is less time consuming than Mail Order / Telephone Order (MOTO) and also more secure, as the TMC never needs to see or handle a customer’s card information. This helps reduce the security compliance burden (PCI-DSS) on a TMC, which can have the added benefit of reducing merchant service charges, and in turn, the cost of card acceptance. It’s also extremely convenient for customers. PCI is particularly important in travel as the International Air Transport Association (IATA) often requires certified travel agencies to follow the regulation closely.

Online transactions that are securely hosted on a payment gateway are seen by regulators as more secure than traditional methods, as they need to be compliant with SCA (Strong Customer Authentication) in Europe, as part of the Second Payment Services Directive (PSD2). This can be achieved by leveraging security features such as EMV® 3-D Secure, which enables customers to seamlessly authenticate themselves with the card issuer when making online purchases.

For returning customers, the third-party payment processor can securely store card details to avoid unnecessary repeated data entry steps. The result? A far easier, quicker, simpler process for customers, reducing barriers to subsequent purchases.

Data is the differentiator

With businesses (cautiously) re-entering the world of corporate travel, the more information a TMC can offer, the more reassured customers will be. And payments is no different. Enhanced travel data that can be passed between providers on a trip – such as between taxi bookings, rail travel and airlines – not only helps align logistics, but it can help the buyer reconcile travel expenses.

More information and data is critical to businesses knowing exactly what is being spent on travel, when and where. This helps with tax, as receipts are tax evident in some cases, but also with budgeting. Faster payments enable a more accurate view of cash flow and, as businesses look to re-accommodate travel into yearly outgoings, those that are well informed on spend can make better long-term plans for travel budgets. Automated reporting can feed into a business’ internal approval process to ensure travel purchases are signed off quickly.

Modernisation isn’t just restricted to long distance travel either; train and taxi companies are also expected to accept card payments, and are also reaping the rewards and opportunities of good data, adding value to customers by offering instant digital receipts that are easier for them to share back with their finance department. To compete with the likes of Uber, taxis in particular need to be able to accept cards and offer value adds like a user-friendly app.

B2B travel is a long way from its final destination, but it might just arrive in a better place than before

As with many industries, the pandemic has driven a shift towards cloud-based payments. To ensure the smooth setup and management of such services, APIs have come to the fore. APIs (application programming interfaces) present a way for two interfaces to exchange information, and so are key to development and functionality of digital payments services. In business travel, such integrations can help enabling merchants to pick and choose how they want to accept payment. More importantly, these platforms also give control to the buyer, overcoming both security and cash flow issues thanks to an up-front line of credit, boosting and maintaining good business relationships.

While the travel industry may have ground to a halt during lockdown, digital payments innovation has accelerated out of necessity. Online purchases are the norm. Previous fears around long development lead times are now alleviated by quick API integrations. Experienced processors can have a TMC’s payment acceptance gateway set up in a matter of hours, with little to no business disruption. The pace of business travel payment now matches the pace of our digital lives elsewhere.

We may be returning to “business as usual”, but it’s evidently a “new normal”. The successful TMCs of the future will be those who act fastest, using modern processes to create internal efficiencies that make the margins needed to provide customers the best deals and ensure profits take off once again.