Embedded payments: Already integrated in the travel world?
When traveling, we come across various parties on our journey. We don’t mean the festive kind, but that of companies that offer us services before we have even booked our trip. Consider the pop-ups you get for travel insurance when booking your flight ticket, for example.
When we are paying for these services, into what extent do travel companies offer us an integrated, embedded, payment experience? And what’s needed to make this a frictionless experience?
Let’s explore.
The embedded payments ecosystem
To start, we need to take a closer look at what the integrated payment concept is all about. This integrated payment concept often goes by another name — embedded finance — where the word ‘embedded’ literally means ‘to fix something firmly and deeply in something else’. Thus, embedded finance translates to fixing or attaching financial offerings to a non-financial offering.
Examples of embedded finance types we can come across include embedded payments with online payment options via e.g., credit card, which are offered at checkout on any shopping website or app. And the insurance offering we got earlier before booking and paying for our flight ticket? That’s called embedded insurance.
These examples demonstrate that the integrated aspect is not a technical activity alone. It’s those in the ecosystem formula with their offering to give meaning to it. Therefore, it’s important to know the primary three stakeholders involved: [1]
- Consumers: This is us, buying the non-financial product and thus, also becoming a potential customer for the embedded financial offering.
- Businesses: The companies selling us non-financial product or service.
- Financial Institutions (banks, non-banking financial companies, fintechs, etc): The institutions selling or moreover backing the embedded finance products. The institutions do not directly sell the financial offerings but indirectly do so – through the businesses. For instance, the business accepts various online payment options and, on its turn, lets us choose from these different options for the payment of their good or service according to our preference.
Advantages of embedded finance for customers
Although it may seem like a plug-and-play concept, embedded financial products require extensive deliberation and collaboration on the part of the business and the financial institution to ideate, forecast, and finally implement.
Most importantly, what’s in it for us as customers to opt in for this set-up and offering in the first place?
Convenience
As users, we get convenient access to financial services like online payment options at the time of checking out or casual usage of a website or app.
Relevant offerings
The financial offerings that we get access to, are not only conveniently placed, but also relevant to the website or app we are using.
Tailored offerings
Financial services available in the market directly, are not very flexible and customer-friendly in terms of both offerings and process. However, embedded finance offers potential customers tailored financial services at the click of a button.
Better experience
As a customer, conveniently getting added offerings always leads to a better overall shopping experience.
Connected offering to common customers
We have now been convinced about the benefits and have decided to opt in and enter the embedded payment process. With that, we help businesses at their turn to manage their relationship with us better. They have a reason to keep the journey smooth as they can improve customer satisfaction and gain extra revenue from the financial products via the financial institutions on their respective website or apps.
Furthermore, customer loyalty as well as competitive advantage are key: A website offering extra financial products like insurance for the product we are buying, online payment options, etc. would be much more attractive than a website not offering these options.
The financial institutions on their turn, can also better manage us as customers on their end: With the businesses running the websites and apps for customers, the user lifecycle management responsibility gets divided between the financial institutions and the businesses, easing the burden to handle queries and customer service.
Plus, it’s also easier for them to attract new customers via embedded finance set-ups as collaborating with businesses and embedding their offerings on relevant websites and apps, provides easy access to a large and relevant customer base at a minimal cost.
Embedded payment trend in travel
With the pictures of all three stakeholders pinned on the wall, let’s now look at how embedded payments bring them together in the travel industry in particular.
Technology plays a fundamental role here. During the last decades, its impact on travel has been significant, to say the least. New IT services and technologies such as cloud computing and automation have allowed companies in the travel space to reduce costs, enhance operational efficiency, and improve services and the customer experience.[2]
And it’s here that new payment innovations and fintech trends such as open banking and — there it is — embedded finance are bringing new opportunities to the table, allowing travel businesses to improve their customer loyalty while accessing new revenue streams.
The other key element to make embedded payments for travel work? Personalization.
The power of personalization for travel payment
Personalization has been one of the biggest talking points in the travel industry over the last few years.
Personalization is the process by which travel providers can offer a much more specific and user-defined journey to us as customers. What that means depends on the provider, but it can range from at-seat services while traveling, to entire holiday bookings, from door-to-door, including hotel, to entertainment and inner-city travel throughout the passenger’s stay.
The user experience needs to be optimal when it comes to booking and paying. For that, travel providers need to integrate different services within the same app or same service so that it’s smooth and seamless — to the point that we don’t need to click more than four or five times.
In this light, airlines could become their own package holiday agents, allowing us as passengers to build a bespoke itinerary. It’s close, in some ways, to how Disney operates its theme parks, with guests able to book and plan each step of their journey to fit in the maximum amount of entertainment. While others may prefer to just go with the flow, they do so with the understanding that they may not get to everything they want.
The personalization opportunities in travel
Even though travel consumer research [3] suggests that we as travelers have other priorities on our minds — i.e., primarily around refunds and transparency — personalization is still something that customers welcome. 72% say there is no excuse for travel brands to have outdated, inefficient payment processes. So, something that takes a cutting-edge approach and is also customer-focused could be just the ticket.
Personalization is likely to involve add-ons to what companies already offer. For some companies, like online travel agencies (OTAs), there will already be large elements of personalization in their offering, but there could be opportunities to introduce extra elements like entertainment booking or door-to-door travel.
For companies like airlines, it could be about offering options that lie outside of what they traditionally offer (like hotel rooms, in cooperation with other partners). For whoever is offering personalization, we can expect multiple bookings to happen at different times and to different suppliers in a way that involves data and funds flowing into more places than before.
Hooking into the embedded payments infrastructure
It needs mentioning though that before businesses can embark on personalization, and implement a more complicated payment experience, they need to make sure that their payment infrastructure can support it.
After all, there’s no point in having a brilliantly coded front-end experience if they can’t move money back and forth to their suppliers in a real-time way. This means the travel businesses need an automated, flexible, and easily reconcilable payments ecosystem, also called — to close the circle — embedded payments.
It’s clear: Personalization is a great idea and the opportunities are numerous. However, because there are so many moving parts, it’s in danger of being let down by outdated payment processes.
Embedding payments directly into the processes of the businesses is vital.
Currently, companies are building the extraordinary with embedded payments using API and webhook notifications — they’re a powerful combination when it comes to building options for customers and recommendations based on customer profiles and information. It’s a balance of payment information, customer data, and real-time information.
Embedded payment innovations in travel
So where are we already seeing some examples within the travel industry?
When we think about how payments can truly add value to the travel industry then it’s all about removing friction – making it easier for us to pay digitally, simply, and quickly. That’s how businesses can improve traveler satisfaction to drive loyalty whilst simplifying the payment experience.
Here, Amadeus is presenting itself as a company that’s considering the entire traveler journey from booking to the airport and finally the destination – and everywhere in between.[4]
After all, working in the travel industry means that guaranteeing a good customer experience is stretched over a longer time than when just doing an e-commerce purchase: Travel companies need to not only create a great payment experience when we are on their website but also when we are traveling.
Responding to that requirement, several pay tech innovations have become available over recent years that can be used to remove friction.
Tokenization enables merchants to encrypt and securely store customer payment information in their own systems for future use.
Merchant Initiated Transactions allow us as travelers to only authenticate once, and subsequent payments can happen invisibly in the background because the businesses – or merchants – can re-use payment information we allow them to store securely.
Last mile digitization uses techniques like QR codes or ‘pay by link’, which are great ways to upgrade processes like chip and pin to e-commerce payments, even in traveler-present environments like the hotel reception and airport check-in.
The way to go forward with embedded travel payments
The embedded finance concept has found its way into the travel universe, stimulated by new technological developments and innovations together with customer demand for personalized buying and travel experiences.
For us potential customers – looking to buy travel services before as well as on our journey, trust in the embedded payment ecosystem depends on the right offering at the right time for payment with the right online payment option, i.e. the option of our choice.
When back-end technology is working and the offering is available and personalized to enhance our travel payment experience, the ecosystem will thrive. And with the broader travel ecosystem becoming ever more digital, the benefits of this payment development will continue to compound.
The stakeholder collaboration and technology fixed firmly and deeply in the financial and non-financial offering will then be a source to tap into for us travelers whenever and wherever we choose to do so.
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[1] What Is Embedded Finance? – Forbes Advisor
[2] 4 Fintech Trends in the Travel Industry in 2022 | Fintech Schweiz Digital Finance News – FintechNewsCH
[3] Embedded payments in the travel industry | ThePaypers
[4] Four trends shaping travel fintech in 2022 | PhocusWire
