Spencer Hanlon, head of global travel payments of Nium, explores why the Starbucks model could inspire more than just a caffeine-boost for the travel sector
Guest Post: Holy frap! Could the ‘Starbucksification’ of travel see profits brewing in 2024 and beyond?
In recent years, everyone’s favourite American coffeehouse chain has reported almost as much profit from customers using its gift and loyalty cards than it has from selling coffee - and travel should consider having a sip of what’s on offer.
Not convinced? In 2022, Business Insider reported that Starbucks had more than $1 billion in unused reward and gift card balances. Or, depending on how you look at it, a $1 billion interest free loan in a high interest rate environment. Today, that number will be even higher and continues to drive significant profit margins for the business.
A decade ago, the idea that ‘every company will be a technology company’ was popular and indeed came to pass, travel included. But perhaps we can now say the same about fintech.
Innovative fintech solutions, particularly in the world of payments, have evolved rapidly in recent years. Travel businesses are embracing new payment methods like virtual cards to reach more customers, reduce risk, and ultimately, improve their bottom line. So how do we all follow Starbucks’ example of turning non-core value propositions into profits?
Of course, there are some travel businesses already embracing this route. Airlines are making significant strides with the introduction of loyalty programs and card schemes. Travel subscription models are equally taking off; Caravelo is building a business on this very idea and eDreams Odigeo reported a total of 4.3m paying subscribers last year.
Modern payments technology sits at the heart of these initiatives. When dealing with legacy payment methods like bank wire transfers, executing and managing large volumes brings additional cost and resource commitments. This directly impacts profit margins and leaves little room for business growth (as volumes grow, so too does the efficiency problem).
Alternative payment methods like virtual cards can offer a win-win for OTAs and their hotel and airline partners when making everyday business-to-business payments. By removing the middleman from the payment, faster reconciliation, reduced costs, and lower risk of fraud improve supplier relationships whilst boosting margins and cash flow.
Virtual cards are also an attractive option when travel businesses need to make payments to customers and employees, like issuing refunds, distributing digital gift vouchers, or topping up expense management wallets.
It’s no wonder the travel industry’s appetite for virtual card solutions is growing, with 94% of travel agents, 90% of hotels, and 86% of airlines believing they will become an essential payment method in the future, according to Amadeus' Wallet Discovery guide.
But so far, these use cases have been limited mostly to the airline and OTA space – and even then, mostly to the biggest players. Will this be the year we see such practices reaching the next tier of airline and OTA players? And what about the hotel industry beyond the big chains?
Modern payment solutions like virtual cards are driving innovative business models in travel. Just like Starbucks, it’s high time we as an industry start recognising the potential of fintech to create new revenue streams and differentiate from the competition. I believe we are standing on the cusp of a travel fintech revolution; those that fail to harness its power now will inevitably fall behind in this new era.