Transforming Your Business by Transforming the Way You Think About Payments
By Oliver Ayres, Head of Travel & eCommerce, Equiniti
In the travel industry, making and receiving payments are often treated as separate processes. There are a number of reasons for this, including the international nature of the industry resulting in outgoing currency differing to the incoming, time delay between sending and receiving funds, and different operational processes required. Viewing the payment journey in this way can cause complexities. Multiple teams and business relationships are required to manage the process and financially protect the company. This is a costly process. Not just headcount and payment processing costs, but also risk management of handling multiple currencies and protecting the bottom line.
Should companies keep these processes separate, or is this back office function harming the business?
The industry is increasingly competitive, resulting in tighter margins. A customer-centric approach is important to ensuring sales growth and maintenance of margins. This is also true for the payments journey—making sure the process is customer-friendly whilst also benefiting the business.
Customers want to pay using a method they are familiar with, in their local currency and with payment terms that are flexible, but what impact does this have on the business?
The removal of card fees through PSD2 at the start of 2018 means businesses cannot pass fees onto the customer. As a result some businesses have considered removing more expensive payment methods (e.g. Paypal, AMEX), in order to save on costs. However, customers use these for a reason (e.g. air miles) so businesses are forced to keep them. Absorbing card fees on a sale is better than no sales at all.
Customers want to pay using a method they are familiar with, in their local currency and with payment terms that are flexible with
Businesses are left with a decision, adapt to accept cheaper payment methods or generate margin from other business areas. The former will come with Open Banking allowing non-bank parties to draw funds directly from customer bank accounts, but a mind-set change is required in the UK where card payments are favoured. The latter should therefore take priority in the immediate future.
The cost of FX is also faced by businesses, however this is mandatory if you are selling to an international audience, or selling international trips. Customers will turn away from a website if not presented with a currency they are familiar with.
Complexity is further added when flexible payment terms are offered. Paying for an expensive holiday upfront isn’t always possible, and offering payment plans can help to win business. However, this comes at a cost; managing a hedging strategy to minimise currency exposure. Traditionally this entire process is manual.
If a business is to be customer-centric in terms of payment, it can be an expensive process. That is before trying to consider the balance between itself and the suppliers. A lot of this uncontrolled cost is related to manually managing the disconnect between customer receipt and supplier payment.
The process of paying suppliers can be manual. Suppliers requiring different currencies, payment terms and payment method can mean multiple relationships and processes. Companies have looked to reducing payment costs. Using virtual cards to pay suppliers have been a popular method to do so. However, this mind-set of cost control on receiving payment has only recently been thrown into the limelight following PSD2 and the removal of card fees.
The travel industry finds itself trying to balance customers on one side and suppliers on the other, while ensuring they generate profit and remain competitive. Viewing the flow of funds as two separate processes causes unnecessary headaches for the business. Processing payments can be expensive, even before regulation enforces more costs. There is definitely a move in the industry to minimise these costs without increasing the cost to the customer or ruining customer experience.
Card payments are expensive for the business to process. Businesses have to look at alternatives to reduce costs. The introduction of Open Banking will likely encourage the cheaper process of bank transfers. However, card payments aren’t going away overnight, so more will have to be done.
So how is this achieved? The answer is automation. There are lots of manual processes used to match up funds received with funds paid—both time consuming and costly. By connecting these processes, time, money and risk can be saved. For example, automatically linking supplier cost in one currency to customer payment in another removes the need to manually manage hedging strategies. Or, automatically scheduling payment runs removes the need to manually process payment batches.
Time is money. Automating the link between receiving and paying funds could be the answer to retrieve losses enforced by regulation or incurred with winning business by being flexible.