The payments landscape has transformed in recent years, marked by the relentless shift towards digital and mobile. Once ubiquitous, the conventional use of cash and traditional card networks has witnessed a gradual decline over the last decade, and this trend is poised to persist. This evolution reached a pivotal turning point during the pandemic years as a surge in ecommerce, and the widespread need for contactless transactions spurred many consumers to experiment with – and ultimately adopt – new ways to pay.
The airline and travel industries have not been immune to this trend. Mobile-first payments and digitalisation were critical considerations for payments and distribution strategies for most airline and travel merchants well before 2019, and many travel brands have made investments into contactless payments.
Despite these efforts, there remains an opportunity for airlines and travel brands to expand their digital payment capabilities and accept more alternative forms of payment, and in the process, grow their addressable markets, increase revenue and create a better experience for travelers.
The Global Payment Digitalisation Opportunity
Cash is no longer king and hasn’t been for some time. Globally, the projected percentage increase in cashless transactions of all types could be as high as 342% for the ten years of 2016-2026, with a forecast increase of 52% from today to 2026.
While cashless payments can involve physical cards, digital payments often don’t – and these transactions are also growing. According to McKinsey, digital payments penetration in the United States increased to 89% in 2022, and the share of American consumers who use two or more forms of digital payments has grown from 51% in 2021 to 62% in 2022.
Digital payments worldwide have not yet achieved that penetration level but are growing faster. Another McKinsey report found that the number of noncash retail payment transactions made globally between 2018 and 2021 increased at a compound annual growth rate of 13%. In emerging markets, that figure is 25% and is projected to grow an additional 15% by 2026.
The travel industry must act swiftly to acknowledge this profound shift and capitalise on the increasing acceptance, familiarity and demand for digital payment methods.
In an inherently competitive sector, especially as global travel demand returns to 2019 levels ahead of schedule, offering frictionless payment options that drive and maintain high conversion rates becomes paramount. Airlines can play a crucial role in driving change industry-wide adoption and support the continued growth of alternative, digital- and mobile-first payments.
However, embracing a more comprehensive payment strategy goes beyond revenue growth or driving industry change. It’s equally about crafting a superior customer experience – a goal that airlines worldwide have long pursued, albeit with its fair share of challenges.
When it comes to online commerce, consumers have grown to demand rapid, convenient, and secure transactions. Should a travel merchant fall short in providing this experience, it can significantly deteriorate their brand perception and their crucial “look to book” ratio. This statistic highlights the stakes: 44% of consumers are inclined to abandon their transaction if their preferred payment method isn’t available and will likely switch to a competitor that can meet their needs.
How can airlines and travel brands adapt payment strategies to meet traveler expectations and grow revenue?
Here are five ways that payment digitalisation, alternative forms of payment (AFPs), and more robust partnerships with payment solution providers can help airlines and travel brands improve their operations and achieve those goals:
#1. A Diverse Payment Mix Mitigates Risk and Cost
Various challenges have revealed a significant reliance on card processing in the payments industry in the past few years, specifically for travel payments. In moments of crisis-induced stress on the system, there is a significant benefit to receiving funds via multiple means. Offering multiple AFP options to customers helps mitigate risk for travel merchants while avoiding the costs associated with traditional card processing.
#2. Enhanced Conversion Rates and Global Accessibility
Expanding payment options beyond traditional cards opens a literal world of possibilities for airlines and travel merchants. By embracing a variety of AFPs and local payment methods, airlines can tap into new markets and revenue streams. Reviewing local payment preferences is critical when opening a new route as a known conversion driver.
#3. Creating Customer-Centric Experiences
Quite simply, alternative payments enable convenience. Passengers appreciate having the flexibility to choose payment methods that align with their financial situation and personal preferences. Supporting a traveler’s payment method of choice demonstrates that the airline or travel brand understands the needs and preferences of that traveler and is committed to creating a convenient, cohesive experience for them.
#4. Reduced Cart Abandonment
Complicated or unfamiliar payment processes can lead to cart abandonment as travelers get frustrated or find themselves unable to complete the transaction. By offering familiar and easy-to-use alternative methods, airlines can reduce this friction and secure more completed bookings.
#5. Leveraging Partnerships
Collaborations with local payment providers can open doors to strategic partnerships. Airlines can offer exclusive discounts and packages, generating additional revenue while enhancing customer loyalty. A key advantage is finding the right payment partner to manage local and regional relationships and streamline the overall process.
Adopting a Future-Proof Travel Payment Strategy
In a world where payment preferences are as diverse as the passengers, airlines have a golden opportunity to harness the potential of alternative payment methods. By casting a wide net and catering to various payment preferences, airlines can enhance customer experiences and grow revenue.
As the landscape of payments continues to evolve, those airlines that adapt and embrace the power of alternative payment methods will be the ones soaring ahead in the industry and future-proofing their payment strategies.
Manager, AFP Sales, EMEA