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While the 'Uber for X' pitch has become something of a cliché in the tech world, it hasn't stopped the gig economy—a broad term for the online freelance workforce that has grown significantly over recent years—from continuing to make its mark on our modern world. Some of these changes are monolithic; Uber’s deep disruption of the taxi industry being the obvious example. But most are small, incremental improvements driven by innovation in other verticals. Such is the case with online travel agencies (or OTAs), which have been forced to revisit their payout processes by the 'Uber for hotels' and 'Uber for tour guides' platforms emerging on their periphery.
Understanding traditional online travel tools
For the past two decades, the vast majority of online booking tools have fallen under one of two models: online travel agency or fare aggregator. Online travel agencies work much like regular travel agencies, consolidating the trip planning and booking process in a single, online environment. Many of these websites market themselves to customers of a niche demographic, or those visiting a particular geography. Fare aggregators operate one level higher, pulling travel resources not only from hotels, airlines, and car rental services but also from online travel agencies. If a fare aggregator's customer chooses to book a listing drawn from an OTA, the agency will provide the aggregator with a referral fee and fulfill the request themselves—otherwise, booking platforms of either model will pay the chosen travel service provider directly.
It wasn't long ago that both online travel agencies and fare aggregators were distributing payments to their providers using wire transfers. That changed with the industry's widespread adoption of virtual credit cards over the past ten years. Booking platforms can now receive payment from a customer and push that amount to a virtual card, which properties or tour operators can key into a merchant terminal and settle in two days or less—a major improvement over wires. Because virtual cards are issued to a specific person, they also add a layer of security by protecting against fraud.
But virtual cards aren't without their drawbacks. Booking platforms need to create a unique card for each transfer, increasing the workload of payment administration, and there's little transparency once a payment has been sent. Virtual cards also push merchant processing and foreign exchange fees onto the travel company, which has become a sticking point as online travel agencies and fare aggregators compete to retain service providers on their platforms. And then there's the fact that virtual cards—revolutionary to the travel industry's payment process just a decade ago—are simply outdated. New payout options are available, and recipients have become increasingly vocal about their desire for something better.
The gig economy rears its head
The demand for change in the travel industry's payment paradigm has been accelerated by the popularisation of another kind of booking platform: online marketplaces like Airbnb, GetYourGuide, and Headout, which rely on individuals or small businesses all over the world to fulfill the services offered on their platforms. Travel marketplaces are changing the relationship between suppliers and consumers in the industry: rather than paying out to a major hotel chain or tour company, marketplaces often need to send money to a much larger number of minor operators in many different countries. Unlike bigger brands, these independent service providers are extremely sensitive to processing and foreign exchange fees, and they're more concerned about the method by which they receive their earnings.
These travel marketplaces often fall under the wider scope of the gig economy. We've seen across gig economy industries—ride sharing, tasking, online retailing, and so on—that payments play a major role in supply-side engagement and retention. The Gig Economy Index, a joint report from PYMNTS.com and Hyperwallet, shows that almost 90 percent of freelancers and contractors would work more if they were paid faster. Also from Hyperwallet, The State of Ecommerce Selling in 2017 revealed that roughly half of ecommerce sellers stick on a platform because of payment speed, and four in five would change marketplaces if the fees were too high. The status quo in payments doesn't work for this new type of booking platform, and that's going to drive change throughout the travel industry as a whole.
What's in your (digital) wallet?
We know that most booking platforms' current preferred payout method, virtual cards, offer some advantages over wires, including greater speed and security. We also know that virtual cards require significant administration, push merchant fees downstream, and deliver a restrictive payout experience for smaller operators. What are the alternatives? Working with established payout providers, some online marketplaces are already opting to distribute payments under a wallet model, wherein funds are transferred to a single, virtual balance. From there, the recipient can see their available funds and self-select their preferred payout method.
This model outperforms virtual cards in a number of ways. Payment instructions can be sent by batch upload or API calls to dramatically reduce administrative workload and funds can be credited to a recipient’s account in real-time. Depending on the capabilities of the payment platform, available payout options can include local currency transfers to global bank accounts, prepaid debit or credit cards, cash pickup, cheque delivery, and more, enabling recipients to choose the most affordable or convenient method. Some payout platforms (like Hyperwallet, for example) also offer identity verification processes and two-factor authentication to deliver a level of security that even virtual cards would find difficult to match. Bottom line: digital wallets make the payment process easier for every member of the supply chain.
The wallet model is the future of booking platform payments—not just for travel marketplaces, but for fare aggregators and online travel agencies as well.
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