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WHY PAYMENTS TRANSFORMATION WILL HELP OTAS STAY AHEAD IN 2020

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.

 

Aran Brown

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.

 

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Finance

HOW TO MANAGE YOUR CASH FLOW IN UNCERTAIN TIMES

CASH FLOW

While the world is constantly changing, probably at a faster pace now than ever before, businesses need to manage cash flow and costs to drive success in uncertain times, says Matthew Thorpe, partner at Haines Watts Essex.

 

Managing people and expenses

There are certain costs that you just can’t avoid as a business – to keep your operation running seamlessly, but scrutinise the detail and cut down on any non-essential expenses. Check things like your SaaS subscriptions and look out for costs that auto-renew and if you do cancel, remember to also cancel your direct debits too.

You might want to put a freeze on hiring new people, but ensure that other roles and responsibilities are clearly and efficiently assigned across your team. The Coronavirus Job Retention Scheme (CJRS) has been introduced by the Government to help UK employers access support to continue paying part of their employees’ salary to avoid redundancies. Affected employees are classed as “furloughed workers”.

Once furloughed, the employee cannot work or they will not qualify for the scheme. For businesses that perhaps need to go further, there may be some roles they don’t need any more, but businesses should work sensitively with people to manage this.

 

Cash is king

In uncertain times, owner managers will need to keep operations going to ensure financial stability. You should look to manage debt more efficiently by negotiating extended payment terms with creditors. You could also renegotiate loans for longer repayment terms to give yourself a lower monthly payment, helping the business to set some cash aside each month.

 

Daily forecasting

As a business owner, you need to create a cash flow projection and update this regularly if you are to improve things. You can do this using financial information to create a picture of how the business will look in the next 12 months. The forecast needs to show revenue sources and expenses, which will show the ups and downs of business income and can be used to make sure that enough finance is in place.

 

Good house-keeping

While banks and other finance providers recognise that the cashflow of a business may be disrupted by the impact of Covid-19, they are still going to want to see that you are viable and continue to trade in these uncertain times. Make sure your business is organised and don’t let disorganisation cause unnecessary issues. You can evidence this by having detailed forecasts; current order books and projections (as best as possible).

Having instantly accessible, accurate financial information allows you to plan effectively, spot issues before they become problems and manage your money in the most efficient and rewarding way.

 

Embrace technology

Software is now incredibly user-friendly and accessible from anywhere. For a business owner embracing the technology, this means:

  • Invoicing can be done instantly when a job is complete, emailed to the customer with an easy to use link to a payment platform.
  • Comparison websites can automatically monitor and help maintain lowest cost for things such as light & heat, insurance etc.
  • Technology can be used in place of face-to-face meetings. It can also enable them to adapt production lines to different demands.

All of these things and more, used properly, can make managing your business finances quicker, easier and often cheaper.  You will also be able to bring clarity to where your business stands and prepare for the next steps.

 

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Finance

HOW FINANCIAL SERVICES CAN GET TO GRIPS WITH RISING SUPPLY CHAIN RISK

FINANCIAL SERVICES

By Alex Saric, smart procurement expert, Ivalua

 

UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.

This is especially true in financial services. Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so financial services firms must be ready to address it. However, many simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.

 

More suppliers, increasing risk

One reason why financial services firms aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that financial services businesses on average are working with around 3,600 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with 60% expecting the number of suppliers they work with to rise.

The expanding nature of suppliers is only going to expose financial services firms to more potential risk than ever before, yet 78% say they face challenges gaining complete visibility into suppliers and their activities.

A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (73%) of financial services firms have experienced some type of risk during the last 12 months. These include; supplier failure (43%), environmental impact, such as pollution or waste (35%) and supply shortages (45%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.

 

Businesses unprepared for the worst

One way financial services firms can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some say they have a contingency plan in place to deal with risk, many of them are unprepared. Financial services firms admitted to not having comprehensive and deployed contingency plans in place to prepare the supply chain for risk such as; natural disasters (68%), supply shortages (67%), geopolitical changes (65%), environmental impact (63%), supplier failure (62%) and modern slavery (50%).

In order to effectively prepare for these types of risks, it’s vital that financial services businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.

 

Making supplier management smarter

It’s imperative that financial services businesses are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure they have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.

For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, financial services firms can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.

To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow financial services firms to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for financial services firms, but by providing the ability to assess suppliers, they will have all the insights they need to mitigate the impact on business operations.

 

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