Aran Brown, CEO of travel payments optimisation innovator, Ixaris
It’s been another year where OTAs have had to scrap and focus in order to forge ahead in a difficult sector. Thomas Cook collapsed in September and, while that was a unique set of circumstances, it was a reminder of the cash and margin pressures all businesses in the travel industry face every day. Couple this with growing consumer expectations of value for money and a seamless booking experience, and it’s clear that OTAs will need to look for every opportunity to combat this squeeze and find new ways of unlocking value.
What many don’t yet realise is that payments transformation is often their best untapped opportunity to do this. OTAs have traditionally seen payments as something that just needs to be kept ticking over, with little strategy or expertise placed in the function. However, the more sophisticated OTAs are starting to use payments strategically and – in many cases – it’s becoming as important to a business’s performance as data. As we look ahead to 2020, we’ve identified three trends that OTAs will face – all of which relate directly to payments, and all of which can be mitigated with a strategic approach to payments optimisation.
The cost of credit
OTAs operate in a fiercely competitive space with seemingly no let-up in the race for new customers. In 2020, thanks in part to changing consumer expectations around the provision of credit at point of purchase, OTAs will look to provide more flexible payment options, allowing their customers to pay off purchases in small instalments.
OTAs will pick up an increasing share of the tab for these credit arrangements, which has a commensurate effect on their already-tight margins. Credit will always carry a cost of course, much of which has traditionally been passed on to the consumer. But as the model becomes more widespread, price pressures and market competitiveness will inevitably push OTAs to finance more of that credit themselves.
However, this increases an OTA’s risk burden and outgoings at a time when they’re under pressure from diminishing rates of return and intense sector competition. Given this context, OTAs are under unavoidable pressure to both find ways to reduce risk and keep more money in the business.
Ease of experience
They’ll need these funds given how mobility and the offerings of disruptors like Airbnb have transformed consumer expectations of the travel-booking experience. Metasearch companies and agency-model brands, which previously would’ve sent consumers to the supplier’s website to complete a purchase, are now looking keep the user in their own ecosystem rather than interrupt the experience. This carries a cost burden for OTAs, which are taking on the payments part of this process that would’ve previously sat with the end-supplier.
While there’s no doubt that keeping the user in a single ecosystem has long-term advantages, it certainly increases the complexity and cost of the offering. Payments optimisation offers a way to balance this cost with revenue, putting OTAs in a far stronger position to deliver a user experience that will chime with today’s – and tomorrow’s – consumer.
Play your cards right
Margin pressure is something all parts of the travel ecosystem must deal with, and airlines are becoming more sophisticated in the way they identify and disincentivise the use of certain cards. As airlines sharpen up their approach to payment methods, in 2020 OTAs must respond by having a range of cards at their disposal that are used in specific circumstances or with specific suppliers.
Consider this – OTAs are used to paying airlines with high-interchange virtual cards that have helped increase their margins. For airlines, however, these cards can eat into margins, which has led them to levy charges or decline cards. This payments friction can ultimately result in decreased airline distribution options and difficult relationships.
Airlines and OTAs should be on the same team. OTAs spend billions on marketing that brings demand to airlines, but payments friction is preventing them from working with airlines in a mutually beneficial manner. Even if airlines are willing to support OTAs as distribution partners, card-based rewards alone are ineffective at creating sustainable relationships due to the lack of cost transparency for both parties.
One way for OTAs to ease this tension is to optimise payments and have a range of cards available and match the card with the airline. But there is actually scope to go even further, and re-engineer the entire payments flow to the benefit of airlines and OTAs alike. What if costs could be lowered for airlines, for example, and rewards for agencies were mutually designed to promote distribution? What if unnecessary intermediaries could be removed from transactions and there were no IT barriers to adoption? If this were to become a reality in 2020, how would that change the dynamics of the industry?
These are crucial questions, but OTAs will set themselves up for success long into the future by addressing payments transformation now. Payments optimisation packages can give OTAs the flexibility and security to provide a compelling offer to their customers, while paying their own suppliers in a way that reduces risk. The money that is saved on credit costs can then be redeployed into marketing and other business initiatives, boosting an OTA’s competitiveness and providing a much-needed boost to their margins at a time when the external business picture is also uncertain.
Whatever the coming year brings, though, optimising payments will give OTAs a platform from which to invest smartly and stay ahead of competition. Now is the time to get on board.
WILL BLOCKCHAIN REVOLUTIONIZE FINANCE?
By Ken Timsit, ConsenSys
Over the last 10 years, researchers, software developers, start-ups, and large companies have been conducting experiments aimed at determining whether networks based on blockchain technology can ultimately – in whole or in part – replace the infrastructure on which financial institutions and capital markets are built.
In today’s electronic databases, any information can theoretically be replicated at will. This is why most governments allow only regulated actors to keep records of digitized assets (banks, depositories), to avoid pitfalls such as the execution of misleading transactions or the creation of artificial assets. With blockchain, these pitfalls can be avoided at the source code of the technology, which is available to all members of the network. The creation of Ethereum enabled a more robust blockchain network capable of “smart contracts”, which once programmed, can run automatically without the results being modified or manipulated.
Contrary to what some critics argue, the potential of the blockchain is not the creation of a free and unregulated space in which everyone can invent new financial instruments. Rather, the potential lies in creating a much more efficient and globalized commercial and financial infrastructure, in which many layers of control and intermediation are no longer needed as they are replaced by transparent and immutable IT rules that ensure the same risk management functions.
For example, bonds are essential financial instruments on which a large part of our economy and savings are based. The issue and exchange of a bond requires the intervention of several dozen financial institutions (issuers, intermediaries and investors). Some regulated players in this intermediary chain exist mainly to ensure that it is possible to know, at any time, who holds each bond, in order to guarantee their rights to its bearers.
It is theoretically possible to simplify these stacks of operators by linking them to a global blockchain network, open to all stakeholders in the industry. The blockchain network can thus ensure at any time that the number of outstanding bonds corresponds exactly to the number of bonds issued, and that each exchange transaction is carried out without the risk of default.
The blockchain revolution is first and foremost the reduction of costs and delays caused by the current financial infrastructure. The blockchain revolution also creates innovation opportunities for consumers, savers, and investors.
The Web3 revolution, often used to refer to the blockchain revolution, will be driven by the reduction in transaction costs, allowing the emergence of new peer-to-peer business models that we are not yet able to accurately predict, but which will probably participate in a rebalancing of the relationships between financial institutions and their clients. Some international peer-to-peer payment and loan-to-peer savings investment models are already attracting increasing interest from the most sophisticated consumers.
Where are we in 2020?
Today, the blockchain revolution is still in its infancy. Transaction volumes through blockchain networks, public and private, are low compared to those of existing systems. The fixed costs of the technology are still relatively high, and the user experience leaves something to be desired.
However, innovations abound. It is already possible for me, from my smartphone, to buy digital assets whose value is equal to about one US dollar, and to lend them in three clicks to other users who will pay me between 1% and 10% per year for this service, depending on the type of platform.
The number of large operational business projects is still small, but very promising. Numerous international commodity trading players have joined forces to create Vakt and komgo, two platforms that contribute to a significant simplification of trade and oil financing. Similar and competing projects, Voltron and Marco Polo, are being launched. On the corporate side, the Capbridge 1x platform (Singapore) already allows shares to be traded on an Ethereum blockchain network. Other important projects such as LiquidShare (France), SIX Digital Exchange (Switzerland), Daura (with Deutsche Borse and Swisscom in Switzerland), Synapse (Hong Kong Stock Exchange) are in preparation. The World Bank, Société Générale and Santander have issued bonds on an Ethereum blockchain network. These initiatives are still experimental but have attracted significant interest from financial institutions around the world.
And of course, many projects aim to revolutionize global payments by creating digital assets on blockchain networks that are fixed in Euros, U.S. Dollars or other currencies, such as those of the Monetary Authority of Singapore, the South African Reserve Bank, and Union Bank of the Philippines. Since the announcement of the Facebook-initiated Libra project, many governments have expressed concern about the possibility of private companies controlling global payment flows, and have asked their domestic financial institutions to redouble their efforts to explore competing initiatives.
All of this is to say that adoption is happening, albeit gradually. The middlemen and intermediaries of the financial world will not be replaced overnight. Moreover, the exact formation or architecture of the new financial system is impossible to predict with accuracy. However, it’s safe to say that blockchain will enable a financial system that is more efficient and yields more value-add to consumers, users, and investors.
RECOLLECTING 2019 CRYPTOCURRENCY TRENDS & LOOKING FORWARD TO 2020
Marie Tatibouet is the CMO at Gate.io
It has been a bold and progressive year for the digital asset market with exciting announcements flowing in from technology behemoths and government bodies around the world. However, Facebook’s launch announcement of Libra (though they are now facing regulatory issues) and China’s new cryptocurrency law caught all the attention, affecting the Bitcoin price, and the overall market sentiment.
In 2019, the global market saw several catalysts emerging for mainstream adoption despite increased scrutiny around several burning issues such as wash trading and security breaches. For over 400 cryptocurrency exchanges in the world, being able to constantly improve on aspects around user experience and fund security is the only way to be sustainable. However, only a handful have real trading volume and technical expertise to build strong trust in the community. For instance, global wash trading has been the hottest topic of discussion in 2019 but new rankings on CoinMarketCap clearly indicate that the industry is working towards eliminating market manipulation.
Looking back at 2019
In 2019, digital asset organisations have constantly innovated to attract users but at the same time, the trading process has become increasingly fragmented, spiking the time gap between new users becoming long-term users.
Holding & Lending Funds
Since 2014, the Bitcoin margin trading market has expanded from $10 million to $100 billion. Margin trading has been a great use case in the cryptocurrency space. Many exchanges launched the feature to provide diversity to the trading experience and attracting a huge amount of users to the platforms. It allows traders to multiply their profits on successful trades, providing a range of possibilities for both profits and losses.
Staking is a process where users can buy digital assets and earn interest by keeping (holding) them in a cryptocurrency wallet for a particular period of time. It has proved to be a strong use case for digital asset companies as it encourages user participation. In 2019, staking programs brought stable earnings for cryptocurrency investments made by the users. For instance, HODL & Earn launched by Gate.io in August 2019 has been bringing stable earnings for cryptocurrency investments made by its users. The competitive advantage for HODL & Earn is its annual interest rate, which is as high as 32%.
Crowdfunding as an approach to build and grow products has seen a lot of traction over the last decade or so. One of the highlights this year was the emergence of “Initial Exchanges Offerings”, more commonly termed as IEOs, an alternative to traditional IPOs where companies can raise funds by selling a quantity of digital assets to investors, supervised by cryptocurrency exchanges. With over 1.5 Billion funds raised, IEOs shook the entire cryptocurrency space in 2019.
Owing to the richness and variability that we have seen so far, there has been no one clear winner to pick, but there’s also no ignoring the leaders; Gate.io has the second best average IEO returns, raising over 80 million dollars in its first 5 projects and has similar offerings panned out for 2020.
Deals and Discounts
Discount deals are being increasingly leveraged by digital asset companies, encouraging users to maximize their capital. Holiday seasons such as Black Friday are packed with jaw-dropping discounts. However, as an industry, we should aim to integrate discounts in digital currencies into the mainstream world, which would bring price stability.
Dynamic User Relationship
Cryptocurrencies are being taken seriously and companies are designing consumer-specific strategies. It is a great indication of the fact that more and more people are interested in trading digital assets. However, we have a long way to go when it comes to tackling the industry challenges and unlocking value for the entire ecosystem.
Regulation, Security, and Mass Adoption
Central banks of the US, Europe, China, and Ghana are looking at creating their own central bank digital currencies, putting a structure to the adoption of the blockchain technology across finance and other industry verticals. Japan’s recent regulation amendments, China’s new crypto law have laid the right frameworks for mainstream crypto adoption.
While we have major countries pushing for the mainstream adoption, security remains a major concern. Cryptocurrency thefts and frauds in Q3, 2019 annual stand at USD 4.4 billion and this will only increase if fund safety mechanisms aren’t strengthened. Therefore, the strongest will survive as far as digital asset security is concerned.
Nonetheless, blockchain technology is helping to create an innovative and accessible financial system around the world and its mainstream adoption is closer than we can fathom.
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