6
Smarter payment.Better business
However, even in the 1980s, hotel bookings were made almost exclusively through the agency model, and customers expected to pay for their stay at the accommodation. This began to change with the founding of the Hotel Reservations Network in 1991. The company was a hotel-focused travel agency accepting bookings through toll-free numbers and reportedly “spending 90% of [their] time as a collection agency and
To answer this, we only need to focus on airline bookings, as they have a long history of using the merchant model. This includes the IATA BSP, which was introduced in 1971.
Where did the preference for the merchant model start?
4
The original goal of the merchant model – to eliminate commission collection effort – changed over time to enable, deliver, and maximize a range of other benefits.
The founders believed something had to change and approached hotels with an offer to buy inventory at a net price up front, then resell it to travelers at a gross price. The former Dorset Hotel in Manhattan was the first to officially sign up. The Hotel Reservations Network was acquired by USA Networks in 1999, becoming Hotels.com. It was joined by Expedia, which was acquired by USA Networks in 2001. Both companies focused on the merchant model, and Expedia eventually launched the merchant model for hotel bookings in Europe during its expansion in the early 2000s.
Virtual credit cards are the ideal solution for centrally controlling and managing B2B supplier expenses.
.
It’s essential for travel intermediaries to have access to B2B paymentoptions to ensure that the benefits also flow through to both the travelsuppliers and the end customer. With the right B2B payment options, they can weigh the risks and costs of their activities as merchants of record. Without such options, these risks and costs go on to impact both travel suppliers and end customers
An effective strategy for B2B supplier payments can be just as important for travel intermediaries as their payment strategy toward their end customers when operating the merchant model, as they occupy a central position between the customer and the supplier.
®
Powered by Mastercard
Expiry date
Card Verification Code (CVC)
Card number
Let’s take a closer look at what exactly virtual credit cards are all about. A virtual credit card is a 16-digit card number with a three-digit CVC code generated specifically for individual purchases. It can be a Mastercard® number, for example. Importantly, the card number loses its validity once it has been used.
What are virtual credit cards?
5
Why virtual credit cards are the payment solution for the merchant model
Virtual credit cards, designed specifically as a B2B payment solution for travel trade, are a crucial enabler in maximizing the benefits and adoption
7
The intermediary therefore receives a single statement instead of many individual invoices and has only one supplier: the virtual card provider.
Each card number can be restricted to a specific booking and set to a specific amount, validity period, and currency. This ensures that virtual cards for travel trade businesses are both secure and flexible, especially for the intermediary’s booking agents, who handle multiple payments across numerous channels every day. Mastercard’s virtual credit cards also protect travel retailers against losses due to supplier default.
Extremely secure
All transactions made with virtual credit cards within a specified period are typically consolidated by the provider into a single, easy to understand statement and issued to the intermediary at the end of an agreed statement period. Suppliers, on the other hand, immediately receive payment from the provider.
Combined billing
instead of multiple
individual invoices
7
Virtual credit card these are its characteristics
By generating a virtual credit card number from the Mastercard® network, travel retailers can pay for all their travel services worldwide. For some perspective, the Mastercard network currently includes 80 million acceptance points worldwide – all providers in this network would accept virtual Mastercard cards.
High acceptance
Advantages of virtual credit card for end customers
Under the merchant model, bundling individual trip components is smoother and easier with virtual cards for supplier payments. Customers can tailor their travel experience more effectively by offering a much wider range of options. The enhanced experience continues at check-out, as the end customer is billed only one amount for their trip, avoiding disparate charges from multiple suppliers.
Using the merchant model with virtual credit cards for B2B payments enables travel intermediaries to build on the core benefits for end customers, with even more choice, better bundling, and less friction at check-out.
Smarter payment. Better business
Acceptance of these options by travel intermediaries ensures a smoother check-out experience for end customers. Travel intermediaries may be more willing to make the necessary investments for accepting these payment options and controlling fraud risks when they know they can easily make outgoing payments to travel suppliers using virtual credit cards – especially as they simplify their own payment operations.
Travel intermediaries are well placed to accept a variety of locally preferred payment options from their customers, which may be unique to their local jurisdictions or simply driven by local preferences. These can include different currencies or payment methods, such as bank transfers, credit cards, ‘Buy Now Pay Later’ (BNPL), and pre-payment installments.
In addition to the provided payment options, pricing is also (primarily) managed by the travel intermediary. This makes bundling, cross-selling, and up-selling easier in a merchant model. The wide variety of additional options, and demand generated via such offers, can deliver better value
The ability to choose which currencies and payment types they accept from end customers enables them to effectively screen incoming payments for fraud.
Travel intermediaries opt for the merchant model because, in addition to the better customer experience already mentioned, it allows them to increase their volume and leverage their capabilities in handling customer payments.
5
• A virtual credit card solution for travel trade combines credit lines and payment terms to significantly improve cash flow
• Digital statements include all the necessary information for reconciling transactions and invoices, enriched with additional data in an easy-to-read overview
Managing and controlling these two elements can be a major challenge for many travel retailers. Virtual credit cards help to address these issues as follows:
This already relieves the financial pressure on the travel intermediary’s business. In general, the financial pressure travel intermediaries face in their payment processes revolves around reconciling payment transactions and supplier invoices and securing cash flow.
Suppliers in this chain also benefit as there’s no need for them to accept the same payment combinations: virtual credit card payments effectively provide them with a payment guarantee.
Advantages of virtual credit cards for travel intermediaries
Direct retailing by airlines, which personalizes their service offerings in direct relationships with their customers, is affecting the intermediaries at the center of this same ecosystem. They strive to maintain their indispensable role as retailers and persuade travel suppliers to rely on their expertise to extend their reach, boost demand, and increase sales.
The pandemic has again demonstrated the value of indirect distribution and travel retailing through the merchant model for travel intermediaries, travel suppliers and, ultimately, endcustomers. This includes crisis management and adaptation to changes in consumer behavior and buying preferences.
The merchant model is most beneficial for maintaining the balance within the ecosystem. It supports the optimal use of payment methods with greater choice for the end customer. At the same time, the travel intermediary – working closely with travel suppliers – can acquire travel services using virtual credit cards to enable optimized cash flow and smooth payment processes. This practice at the heart of the ecosystem impacts the entire travel value chain.
Smarter payment. Better business
6
Digitalisation in B2B e-commerce is here to stay – something that also impacts the travel trade ecosystem. Along with the digitalisation trend, the pandemic and the subsequent recovery of the travel industry forced a further re-evaluation of business models and payments.
The modern merchant model
Outlook
airplus.com/contact
AirPlus International
Do you have any questions? Feel free to contact us!
