A Brief History
The 1970s was a decade of reimagining, not just in culture and politics, but in how we experience the world. Holidaymakers set their sights higher than sandwiches and thermoses of tea by the seaside. Economic prosperity disrupted the notion that travel was reserved for the globe-trotting elite, and innovations in aviation, such as the Boeing 747, dropped airfare prices to historic lows, making long-haul flights more accessible than ever.
It was the decade of package holidays. The average traveller no longer had to spend hours planning. Travel agents offered hassle-free holidaymaking services, bundling leisure, location, and logistics into one neat, affordable package.
However, as demand for air travel rose, so did the complexity and volume of transactions. At the time, travel payments could only be described as fragmented and cumbersome. For every ticket sold, travel agents had to settle accounts individually with each airline, whose payment systems varied significantly, further adding to the chaos.
As ticket sales continued to skyrocket, it became clear that action was needed. In 1971, the International Air Transport Association (IATA) introduced the Billing and Settlement Plan, also known as BSP.
What is the Billing and Settlement Plan (BSP)?
Available to IATA-certified travel agents, BSP acts as a middleman between agents and airlines, simplifying the payment process by centralising payments from agents to airlines. Instead of making multiple time-consuming individual payments, one payment is made to IATA, who then distributes the funds to each airline, saving time and reducing errors.
BSP Cash
Travel agents would settle their IATA accounts using a method known as BSP Cash. In this system, agents used bank transfers or even good old-fashioned cash to pay IATA amounts owed for tickets sold. IATA then allocates those funds to the airlines that sold the tickets.
BSP and BSP Cash have been staples in the travel payments industry for decades and remain the go-to solutions for travel agents worldwide. It’s simple, streamlined payment method has made BSP a cornerstone in the travel payments industry, servicing over 400 airlines in 180 countries and processing an estimated $225 billion in 2023 alone.
Travel Payments in an Increasingly Digitalised World
The travel industry in the 2020s could draw parallels with the 1970s. With demand for travel set to rise, ever-shrinking margins, and an increasingly complex and competitive landscape, some industry players will seek a solution to streamline and revolutionise travel payments in the same way BSP did in 1971. Digital alternatives have slowly moved into the market, seeking to provide just that.
Tailored solutions to complex business-specific problems have become the norm in the age of personalisation, and virtual cards have made a small yet disruptive impact, offering features such as automated reconciliation, enhanced security, and payment expediency.
For a more detailed explanation, check out our article on virtual cards. In short, virtual cards are digital cards that work similarly to physical cards, with a few exceptions: they cannot be used to withdraw cash and are often prepaid. However, like physical cards, they have 16 digits, expiry dates, and a CVV code. Virtual cards are becoming a popular method for OTAs to pay airlines and suppliers.
What Are the Key Differences Between BSP and Virtual Cards?
Payment Methods
BSP provides a centralised payment system where a single payment via cash or card is made to IATA, who then distributes the funds to each airline. In contrast, virtual card issuers can provide various virtual card solutions, such as issuing one card per transaction.
Processing
Processing may take more time with BSP due to the manual nature of bank transfers and cash payments. Accounts may take longer to settle before IATA allocates the funds. Virtual cards offer faster payments and real-time processing, meaning airlines and suppliers can be paid almost instantly.
Flexibility
The lump-sum payment method used by BSP means payment flexibility may be more limited, as OTAs have no control over when payments are made. Virtual cards offer more control, enabling payment limits for each transaction and the ability to make individual payments to different suppliers and airlines.
Reconciliation
Unlike the manual reconciliation used by BSP, a key feature of virtual cards is their ability to automate the reconciliation process. Virtual cards automatically link purchases to their respective payees, and because they are prepaid, payment errors are unlikely.
Global Reach
Despite increased uptake, virtual cards are yet to have widespread acceptance in all markets, partly due to factors like higher interchange fees imposed by card networks.
Fees
BSP cash does not entail processing fees, while virtual cards include an interchange fee. However, it is not uncommon for virtual card providers to offer a rebate on these fees to OTAs.
Takeaway
BSP and virtual cards both provide distinct solutions. The uptake of virtual cards is unlikely to overshadow traditional payment methods but rather provide an alternative for OTAs seeking greater speed, flexibility, and control.
As we enter the mid-2020s and beyond, trends around personalisation and automation in payments are unlikely to vanish and may drastically change the face of the travel payment industry with increasing uptake and OTAs vying for new revenue streams, virtual cards will likely remain at the front and centre of those changes.
About Pax2Pay
Pax2Pay is dedicated to streamlining the supplier payments process for OTA’s, learn more about how virtual cards can help you by getting in touch here.