Guest Post: Why are OTAs taking control of payments?

Jean-Christophe Lacour, SVP and head of product management and delivery of Outpayce from Amadeus, breaks down the sentiment behind it

Our recent Travel Technology Investment Trends study surveyed senior technology leaders from every sector of the travel industry to understand how and why they are investing in technology. Leaders from OTAs told us the technologies expected to make the biggest impact over the coming year are: analytics, machine learning, Gen-AI, digital payments and self-service. It’s the role of digital payments I’m keen to explore in this article.

Traditionally, most travel agencies have avoided responsibility for processing payments. Instead, they’ve ‘passed the traveler through’ to the suppliers involved in the booking so those suppliers can accept the payment. The so called ‘pass through’ model, which limits liability and effort on the part of the agency. 

However, a trend has been developing now for a number of years where agencies of all types, but particularly OTAs, have decided to make payments central to their overall strategy, controlling the overall customer journey and creating opportunities for revenue growth. This approach sees the agency become the Merchant of Record (MoR) with formal responsibility for accepting payment from the traveler. Once payment has been received, the agency then settles with each supplier by making a series of onward B2B payments – typically using virtual cards.

Data recently shared by Mastercard exemplifies the growth in this trend. Payments from travel agencies to airlines using virtual cards are growing significantly faster than payments using the pass-through model. For example, in Europe virtual card payments grew by 95% between 2019 and 2023, whereas pass-through transactions only grew by 18%. The trend is even more pronounced in other regions like the US, where virtual card payments from agencies to airlines grew by 384% during the same period and pass-through payments by just 17%. The only logical explanation is that more travel sellers are choosing to become the Merchant of Record, but why?

Benefits of the merchant model:

Delivering a smoother customer experience

Perhaps the most important factor at play is the customer experience. When an OTA accepts payment from the traveler it provides greater flexibility to combine products and services from different third-parties and package them into a single bundle, for which the traveler only makes a single payment. Imagine being passed through to pay an airline, then a hotel and finally a transfer company.

Similarly, OTAs strive to make searching, planning and booking travel simple. Payments is an important aspect of this overall experience and when the OTA acts as the MoR it is able to control the payments experience. For example, by enabling a wide range of alternative and local payment methods or modern digital wallets like ApplePay and WeChat Pay so travelers can pay in the way they choose.  

Taking greater control of the customer relationship

When the OTA processes the payment there’s no longer a need to hand the traveler off to the various service providers involved in the booking. This increases convenience for the traveler but it also helps the OTA to control the complete customer experience end-to-end, that opens up more opportunities to retail ancillary products and puts the OTA in a stronger position to organize the entire trip. 

Maximizing the benefits of B2B payments

A key enabler for this entire trend is the ability for an OTA to make outbound payments to suppliers easily and securely using virtual cards. Each virtual card can be used once to pay each supplier, establishing a one-to-one relationship between the booking and the payment, which greatly reduces the administrative burden of becoming the MoR. 

Virtual cards can be used from a wide variety of issuers, many of which will offer the agency a rebate when their card is used to pay suppliers. Given the overall value of products an agency sells even a modest rebate from the card issuer can equate to a meaningful additional revenue stream for the agency. OTAs that have been successful with the MoR approach tend to generate more income from virtual cards than it costs them to accept payments from travelers helping to ensure a positive overall economic impact. 

The loyalty connection 

Loyalty and payments have always been closely linked. Hopper offers its customers ‘Carrot Cash’ as a loyalty incentive when they book flights or hotels through the app. These incentive tokens can then be redeemed at a value of 1 Carrot to 1 US Dollar when paying for future flights and hotels. It’s a clever way of rewarding loyalty – but it’s only feasible because Hopper acts as the MoR. It’s unlikely suppliers would choose to accept Carrot Cash should the OTA operate with the pass-through model.

We’ve seen a general coming together of fintech and travel over recent years as travel retailers begin to embed services like payments, Buy Now Pay Later and insurance to provide a more comprehensive service and drive new revenues. On the flip side, major banks and fintech firms have begun to sell travel experiences at scale. It’s an exciting time to be working at the intersection of these two growing industries and there’s huge potential for savvy agencies that take a strategic approach to managing payments.