How a digital payment solution optimizes the procurement of travel services at the

This is to say, external factors are not changing B2B purchasing, but rather the personas of the employees who manage procurement and purchasing processes today are changing and

Because of the changing demographics: Millennials and Gen Z will make up over 60%4 of the workforce by 2024. Both groups form the majority of today’s online B2C shoppers. Both Millennials and Gen Z use e-commerce to shop faster, get the best prices and discount offers, read customer reviews, and benefit from fast shipping.

Why?

Arguably the biggest game changer has been the consumerization of business-to-consumer (B2C) purchasing habits merging with the B2B ecosystem – a trend that will only increase over the next 5 years.

In recent years, the trend toward digitalization in the retail sector has been steadily increasing. In this chapter, we’ll be focusing on digital business-to-business (B2B) commerce by asking: What factors have driven the payment options in B2B e-commerce for direct (merchant-owned websites) and indirect (marketplaces) B2B e-commerce?

The travel trade ecosystem is made up of multiple layers and players, as illustrated in the schematic overview below. Several options for intermediaries are available for arranging bookings for end customers, consumers, or business travelers.

In this e-book, we focus on the heart of the travel trade ecosystem: Travel agencies and other retailers who act as intermediaries, purchasing from travel suppliers for resale and serving end customers or travelers. But before we zoom in on that, let’s take a bird’s eye view of the entire ecosystem and see who is positioned where.

These options can be broadly divided into direct and indirect channels, with indirect channels such as offline and online agencies, travel management companies (TMCs) and tour operators using one or more intermediation layers between the end traveler and the supplier.

In a recent study by the European Technology and Travel Services Association (ETTSA ), 11 primary hotel distribution channels were identified. Airlines have similarly diverse options for selling inventory.

Lufthansa, British Airways, American Airlines, and Iberia were the first to adopt NDC, and the technology continues to make its way into airline distribution, alongside other means to improve airline operations. Currently, representatives from almost all airline distribution organizations have become involved with the NDC initiative in one way or another.

Access to customer data via NDC allows for better control of pricing strategies. An example of this is dynamic pricing, where various criteria are considered in real-time to enable truly personalized pricing.

The technical standards of the International Air Transport Association’s (IATA) form the basis of the new offer and order infrastructure. NDC is essentially an XML standard that enables airline service providers to deliver rich content and additional or ancillary services to their customers. Rich content is one of the factors through which airlines can market themselves and differentiate their brand.

The model focuses on transforming traditional systems and processes into a modular IT infrastructure that is better suited for retailing travel products. Future orders made through this system will be able to include multiple supplier and product records in one order instead of today’s fragmented booking and ticketing record system.

For airlines to become modern (read: digitalized) and empower travel retailers to offer their customers the flexibility to optimize, personalize and monetize their products, the airline industry has introduced the ‘offers and orders’-based model.

The application of digitalization in airlines also serves as proof of how digital direct retailing has impacted the travel industry. We start with the fundamental understanding that all airlines, as providers of travel services, share two basic needs: revenue and passenger satisfaction.

Customer expectations continue to evolve, and leading consumer brands are now focused on providing optimized digital experiences. An example of this can be seen with Betterment, a financial advisory company that delivers investment advice directly to users through its intuitive mobile app, and the global technology company Samsung, which uses artificial intelligence (AI) to improve online customer support.

To avoid being left out and truly reach and influence travelers and travel managers in how they shop, book and purchase travel, providers like online travel agencies (OTAs), travel management companies (TMCs) and leisure travel agencies must participate in this process. That said, with the future lying in retail, intermediaries – many of which are inherently travel sellers – already hold a key position in travel distribution

As airlines and travel service providers are an undeniable part of the travel ecosystem, the customer-centric focus of the NDC in this more personalized approach also has direct implications for intermediaries within the ecosystem.

These benefits can be further enhanced through fraud reduction and improved payment management when travel intermediaries use the merchant model – a set-up in which they hold the lead in the relationship with both their suppliers and customers.

After all, as mentioned above, travel intermediaries create value for their partners by extending reach, driving demand, and growing sales.

It’s also worth noting that large OTAs have greater marketing budgets and reach than global hotel chains and major airline groups. The power of these marketing engines brings more demand and volume to travel suppliers who choose to work with these travel agencies.

In addition, the largest online travel agencies (OTAs) in the travel distribution ecosystem have become so important that, pre-Covid, the top players each handled annual travel volume in the order of US$100 billion, surpassing the major airlines in revenue.

The expectations of end travelers have changed over the past ten years. In addition to the digitalization element of online purchases, another factor has been the development of new payment methods. Many travel intermediaries have had to adapt to a digital, more comprehensive retail concept to meet these new expectations. This, in turn, has necessitated even greater use of the merchant model to offer

As mentioned above, travel intermediaries are well positioned in the market, holding the key both as buyers of travel supplier services and as sellers of those services to their end customers. By maximizing this position, they can remain firmly embedded in the ecosystem.

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.

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?

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.

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.

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.

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.

• 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.

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.

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