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PIONEERS OF THE ‘THINK GLOBAL, ACT LOCAL’ OUTLOOK

18/10/2019

James Booth, Vice President – Head of Partnerships, EMEA

 

The term ‘global village’ has been in use since the 1960s, but the internet has really turbo-charged the idea. It has shrunk both distance and time, making the world more interconnected. People can now exchange messages, stories, opinions, posts and videos online easier than at any time in the past.

Consumers can experience so much — new ideas, cultures and places — virtually. Yet the market for real-world, physical travel is still growing. Unsurprisingly, more and more of this is booked online. So, how has the travel industry managed to sustain growth and stay relevant in a shrinking world? And what can other industries learn from their example?

 

Travel sector playbook

Airline and hotel purchases account for 15-25% of total e-commerce spend by value across the ten countries in the recently published PPRO and Klarna European Travel Guide. This ranges from one-lira or one-zloty-in-seven spent online in Turkey and Poland to one-krone-in-four in Norway.

This is because airlines and hotels were the true pioneers of global, customer-centric commerce. To extend customer choice and maximise sales, hotels and airlines have always sold through multiple channels. Whether it was travel agencies, tour operators or direct-to-consumer, they embraced platforms and marketplaces before it was fashionable. They traded ‘cross-channel’, ‘multi-channel’ and ‘omnichannel’ before such terms existed.

To make customers feel at home wherever and however they spent, they priced in local currency and offered dynamic currency conversion (DCC) as standard. Airlines and international hotel chains were also early to loyalty schemes and to using intelligent systems and insight to personalise the customer experience.

To secure sales from overseas customers, hotels and airlines understood the importance of local payment methods. They have always offered popular local payment options, such as bank transfers, e-wallets and domestic debit cards. To capture their share of the growing Chinese outbound tourism market, hotels and airlines were also early acceptors of Alipay and WeChat Pay.

 

The more global, the more local

There’s no one single, global way to pay. Global payments brands such as Visa and Mastercard account for only 23 per cent of global e-commerce payments. This will fall to 15 per cent by 2021, Worldpay research suggests. So, far from consolidating, the payments landscape is fragmenting.

There are more than 145 different local payment methods of relevance in Europe alone, as profiled in the PPRO Payments Almanac. Acquirers, payment service providers (PSPs) and merchants must accept that unless they can localise payments, they will miss out on sales.

For example, those selling online in the Netherlands or trying to appeal to Dutch shoppers must accept iDEAL. 57 per cent of online purchases are made via this bank transfer method. Online merchants in more than 60 countries worldwide now also offer iDEAL as a payment method to Dutch customers.

 

The right payment partners

While it is good manners as well as good business to localise payments, for merchants it is a catch-22.  Allowing customers to pay anyone, anytime, anyhow from any device or funding source. Or exchange loyalty points for full or part payment for travel or other offers pushes complexity into the back-end. Or administer the various currency pairs in a multi-currency or DCC transaction, is more complicated than it sounds.

Payments play a central, enabling role in driving simpler, smarter, more customised experiences. Managing the increasing complexity in the payments process requires a large set of specialised payment services. So, the need for a central, value-adding hub for local payments has never been greater.

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Finance Derivative is a global financial and business analysis magazine, published by FM.Publishing. It is a yearly print and online magazine providing broad coverage and analysis of the financial industry, international business and the global economy.

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