Virtual B2B payments in the travel industry

Full transcript:

Please can you tell us a little bit more about Pax2pay and what you do?

Good afternoon, Gordon. Thank you for inviting us along today. So Pax2pay is a digital payment platform designed specifically for the travel industry. Pax2pay is part of the Paxport Group, a big organisation headquartered in Sweden. We also have offices in the UK, in Bristol, and we power booking platforms for most of the OTAs and the travel agencies and tour operators, not just in the UK, but across Europe. Pax2pay grew out of that business to provide the payment solution to people who use that platform, but also now is expanding rapidly across the European market to power payments in travel generally, whether they use the Paxport solution or other solutions as well.

Perfect. Thank you very much. And I think virtual cards are a very interesting area for us to explore today. So I'm really looking forward to talking to you more about that. First thing we wanted to talk about was from what you've seen over the last 10-15 years in the industry, what innovations do you see happening with virtual cards to improve accessibility?

Well, as you say, virtual cards have been around for quite some time. They started their life really as a credit solution, but then prepaid solutions started to be introduced about 10-15 years ago, which kind of revolutionised the way that OTA’s and tour operators in the dynamic packaging world, or tailor made holiday world, can power the way that they procure and buy flights and other components of a holiday that people traditionally used to buy as a package.

But in terms of what's going to happen in the future, they continue to evolve. Digital banking solutions now make things significantly better than the historical way of doing things. And there are all sorts of wonderful things in different BINs and the different ways of currencies can be provided. But probably the biggest development I think really has been around the API. So it's not just now you need to use anything like by way, but I log on to a solution now, OTAs and tour operators can use their back end system or even their front end solution now to reach out through a very sophisticated API. We spent a lot of time putting together our API, very easy to integrate with but also it contains and provides a significant amount of additional sort of data structures and opportunities to book different things, not just reserve an aeroplane flight.

So that's one of the things and also the platforms that other people are developing as well. We integrate with them. So not just the booking platforms but also hotel payment solutions and other people but that's the way we see the market going. But the API I think is where we see the future.

Perfect. Thank you Dave, and embedding yourself into your customers payment journeys really helps to build the stickiness, doesn't it? Around what we're offering. Thinking more about virtual cards and the specific benefits that they offer to travel. Do you think the industry is making optimal use of all of the functionality at the moment? And if not, what are we going to see next?

To be blunt, no. I think we're building things that people are still learning about and still need to be educated as to what else they can do. Some of the tour operators and OTAs that we work with have embraced some of the additional functions and features, the key really is reconciliation. That's the big thing you can imagine. These problems go back years where you can imagine getting a bank statement or a credit card statement with thousands of transactions on it, trying to match which transaction was used for which booking or for which holiday is absolutely vital for the finance departments of these OTAs and tour operators particularly the bigger ones that do thousands of transactions a day. So, we are focused on that and the whole metadata structure and the amount of data that you can match to these transactions is absolutely key. So we see that as being something that the more people start to realise and understand that that is a relatively simple process now. And with almost 99.9% success rate, whereas going back a few years it was in the 80s and early 90s. That's been a significant breakthrough.

And also there are other things that they could do within the speed is something that is key now that we're seeing thousands of transactions literally per second, if not per minute, going through our platform, supporting all the customers that we have and also starting to use artificial intelligence now to help our customers predict when their spend volumes are going to go up and making sure they've got sufficient funds to cover that spend volume. So there's a lot of things out there now that are available or will be becoming available. But no I don't think we've touched the surface yet when it comes to opportunities to be given by using virtual cards.

Excellent. Sounds very exciting. We really look forward to what you develop in the future for the OTAs and for the market in general. I think one of the strengths around virtual cards and cards in general is the flexibility and the financial security, particularly around unexpected situations. Could you talk more about the benefits that this offers, particularly over the long term, to customers of yours?

Yes. There's no denying that what we've been through the last two years has had a massive impact, not just on the travel industry, but also the organisations and companies that support the travel industry, such as ourselves. Using cards, one of the big benefits of using virtual cards and the schemes is that you get supplier protection insurance or service protection insurance, which means that if the service isn't provided or if you're not happy with the service, then you can claim that money back as you can with any normal credit card or in your wallet. That was stretched to the point of almost breaking the solution during COVID.

Thankfully, we work very closely with you guys, which we were very appreciative about and we could see thousands of claims were going in a day. So those are massive benefits and hopefully we've all, as an industry learnt that hopefully this will never happen again. But we've had the collapse of a couple of Airlines over the last few years with Thomas Cook and also with Monarch. We are starting to learn that there is a better way of doing this. So the protection is very attractive and I think it's one of the big selling points of using virtual cards, but also in order to be able to process large volumes of chargebacks and claims, I think is absolutely key.

Yes, indeed. I think, as you quite rightly mentioned, that the collapse of an airline was formerly a big event in the dispute resolution and chargeback arena. We've been proven that obviously there are bigger events on the horizon, but being able to quickly and efficiently deal with those claims is hugely important. And virtual cards certainly, and cards in general infrastructure lends itself to that.

I agree and I think the industry has learned a lot. The tour operators and travel agents have learned to be more engaging with the Airlines in order to make these things happen quicker, better and less clunky shall we say. But there was a lot of stuff in the press about Airlines not refunding and all sorts of things. I think time to move on now that it was a difficult period that everybody had but this insurance is there and it's a selling point and I think it's a very important thing but I think OTAs and tour operators are all starting to learn that there's probably a better way of managing the way that the process operates.

That brings me onto the next question actually so we've talked a little bit about virtual cards and some of the plus points of them in terms of paying for various travel suppliers. How do they tie into other payment methods and infrastructure which is available in the market?

Well, I think probably (which is probably why our relationship with Modulr is so important), the advent of digital bank accounts or digital payments now has taken virtual cards into a whole new area, where previously moving money into a prepaid account (which is obviously what we provide), took some time before that money was available for people to be used. So with the advent of faster payments and SEPA Instant and all those payment rails that are out there now we wanted to make sure that our customers could take advantage of those, all our customers now have digital bank accounts. They can have them in different currencies if they want. Moving money in and out of those bank accounts now is based on the normal banking practices of faster payments so people can move money in and out of their accounts over the weekend, or even in the middle of the night if they wanted to, but thats been in our opinion a massive breakthrough, and that is where we’re seeing lots of customers wanting to come and migrate their business over to our solution because that’s a big bonus for them. And it’s all down to their treasury departments and cash management, they don’t want to fund their accounts until they absolutely have to, we understand that, and we think that's been a big benefit.

There are other areas of spend. Not just flights, people tend to think that virtual cards are very much associated with booking flights, they're not. A virtual card is a credit card number, an expiry date, and a cvv2 number, it’s just the plastic doesn’t exist, and you generate a unique card every time you want to make a payment, and that makes a payment to anybody that accepts cards, so hotels, media payments, we’re seeing a massive increase in people wanting to use virtual cards to pay for their media spend, which is lots and lots of transactions of a relatively low value, but if you actually add all that up in a big OTA it adds up to a significant amount of money, and again the way that they're doing that at the moment is not probably the best way of doing it, and also they can benefit by getting some rebate and some commission on it. So we’re starting to see a much broader, within the travel industry, a much broader ambition that these tour operators and OTA’s have got in terms of who they can use their cards with.

Excellent so it's just about opening up the sphere of where a card can be used, it's not just as you say for air, it's for any supplier that you're paying anything for, all of the benefits that attract you to virtual cards, the reconciliation, the ability to charge back, the sort of acceptance rates, that all applies elsewhere doesn't it, so it's a really interesting point.

Well it does, particularly hotels, if you think about processing payments to hotels all OTA’s and tour operators every week or every month settle hotel payments, whether it's hotel invoices or allocation payments, but they process high volumes of transactions through their accounts payable department, but they do bank transfers, which is which is fine we could do back transfers, but all these hotels take credit cards, so why not. There's no difference in funding because the money left the bank account to go to the hotel by a bank transfer. Just move the money onto a card and send the transaction via a card and we're seeing that that's going to be a big growth area for us this year.

Excellent. So you've been in the travel industry and their payments for many years now, one of the things I think would be great to get your unique perspective on, as I say you've got great experience in travel and great experience in payments, what do you think are going to be the main areas of focuses for businesses over the next five years?

I think the recovery is going to be quite frankly the biggest focus that all OTA’s, tour operators, airlines, anybody in the travel industry, and even businesses like ours, it's all about the recovery. Our business, and I'm sure you appreciate airlines and tour operators, their business shut down literally in a day. We went from doing loads and loads of bookings and then the shutters came down literally overnight and the next day nothing was being booked, so that's going to take some recovery. And then it remained like that then of course we weren't seeing the opening up of borders, and traffic lights, and all sorts of bits, and stop and start, and everything, but slowly it recovered. But I think the recovery is going to be where people are going to be focused on.

But also learning from things that happened, and I think sort of looking at things maybe around looking at how they're running their businesses, looking how they can do things better, particularly looking at protecting their customers. So we don't get into a position again where there's the tour operators have a relationship with the passenger that they want their money back, but then the tour operators have a relationship with the airline and they want to get that money back, so I think there's going to be a lot of consolidation around people needing to talk to each other and find out that there's a better way of doing this. But without a shadow of a doubt the recovery is going to be the focus.

Excellent thank you. And then just sort of one of the final questions, do you think there's any areas that people aren't talking about that they really should be doing, are there things that are happening today that if they're not addressed will become bigger problems in the future?

I wouldn’t say there's going to be problems, there's this misunderstanding that people tend to have with virtual cards, we spoke about this before, where one of the most interesting conversations you have when you're talking to a customer that's not using virtual cards, and you present to them the solution, and then they ask you how much it's going to cost? And you actually say well it's not going to cost anything, we're going to give you money. They think they're completely bonkers but that's actually the model. I don't think there's another model that i've ever come across like it, some people just really don't quite understand that. So rebates is something that I think that people need to talk about a little bit more.

Acceptance, and the merchant service charges that the airlines have to cope with is something else that needs to be taken into consideration, then there's the chargebacks as we talked about before, so there's quite a few things. But the thing that we don't really pay much attention to is the fact that people actually can earn money out of doing this. It's not a cost, they can actually turn that completely on its head and actually put it in as a revenue stream.

How do we improve the education around virtual cards?

Well obviously watching things like this! And I think there's a lot online, there's an awful lot online now that you can read. Go to our website and look at what virtual cards can do, contact our team and we'll we're more than happy to explain to people what virtual cards can do.

There is this thing that virtual sometimes throws people off a little bit, because the word virtual kind of suggests that it doesn't exist, I don't know who actually ever came up with the word virtual but that's what they are, but there's a lot online now you can get there's quite a lot of media that you can go to, and also there's people like ourselves, we're trying to educate people as best we can on it.

Excellent, so signpost to Pax2pay then. We have another question that's come in as well, could you tell us a little bit more, I would be quite interested to hear this as well actually, from when you mentioned before about how AI can help customers?

Yes we're looking at things at the moment about being able to predict when, looking at people's bookings and looking at the payments that people are making, and looking at putting patterns together, one thing the pandemic has done is kind of turn the whole seasonal thing on its head, we don't know what the seasonal spend is going to look like this year, whereas we used to be able to predict it pretty closely, where that's changed now, so there's going to be last-minute bookings, easter has been pretty good, we've got the bank holiday at the end of may, then we've got the summer, then we've got september october coming up, and then are we gonna have a big winter ski business? So it's kind of trying to predict for cash management purposes, to say based on your spend patterns at the moment, we expect that with your current balance that's in your funding account you're going to have to top it up maybe a week on thursday, or things like that, and also looking at where people are going, where is the general public going, we saw a massive boost on business to the canary islands, and this is working not just using our own data but this is working with our partners data platforms. So finding out which airlines are focusing on which particular routes, what days of the week people tend to be moving towards flying out on, so there's the bringing all that data together, modelling it to find out whether we can be a little bit more predictive about what people are going to be doing next week, or the week after, or even months ahead, because as I say we used to follow a fairly nice curve on the seasonal spend.

Excellent thank you, and I think predicting the seasonality now is a very challenging, but interesting prospect. So we have one more question that's come in, will open banking become a game changer for B2B payments in travel?

We hope so, yes I think it will. I think the ability to move money around quicker, more effectively, in different currencies, without a doubt is a game changer in any industry, the days of waiting three days, four days, for payments to come through are long gone now, in our world anyway. So open banking can be can be interpreted in many ways, there's going into bank accounts and finding out certain information if you want to do credit checks, and things, in our world it's more about digital banking, and moving money from your bank account to a supplier's bank account effectively and quickly and securely, which is kind of where you guys come in and working on our collaborative approach to that. So I think if you want to do virtual payments or you want to do payments in the travel industry you should be looking for people that are embracing this type of technology.

Certainly as you say it's quite early on in the days of open banking, I think there's going to be many innovations and changes that we see over the next couple of years that are really going to help to drive adoption of that new world.

Well it can only get better, compared to if you go back about four or five years, when I've been in this industry as you said several years, the ability of moving money around was nothing like it is now, and people just accepted it. But now people are not prepared to accept it, they know what they can do with their personal banking, why can't they do it on business banking and now it's starting to happen which is absolutely wonderful.

That's very true and people do take what they experience from their personal banking and expect that from business banking so great that you're helping them to achieve that