Travel payments, part 3: Virtual payment tech and its impact on business travel
One of the key drivers of travel’s evolution from a primarily offline, manually processed business to one increasingly coordinated online has been the transformation of the payments industry.
The development of the internet, followed by the birth of e-commerce – notably Amazon in 1994, eBay in 1995 and shortly thereafter online travel brands such as Travelocity and Expedia – spurred a need for digital payment options.
One of the first was PayPal, launched in 1999, and today there are hundreds of ways for consumers around the world to pay for products and services online.
According to the World Payments Report 2018 from Capgemini and BNP Paribas, global non-cash transaction volumes grew at 10.1% in 2016 to reach 482.6 billion. That rate is expected to accelerate through 2021 to 12.7% compound annual growth rate globally, with emerging markets growing at 21.6%.
This shift to non-cash transactions is redefining business payments, which for many years were handled manually with checks.
While checks are still used – in fact the United States remains a “heavy user,” according to Mastercard – the transition to digital payments has been happening for years.
Mastercard estimates that the current global business payments market exceeds $100 trillion, across all payment types, but it estimates non-cash payments will grow an average of 6.5% annually through 2020 to reach 122.4 billion transactions.
A big chunk of that money flows through companies connected to the travel industry.
According to Allied Market Research, the global business travel market was worth $1.30 trillion in 2017 and is estimated to reach $1.66 trillion by 2023.
And certainly the shift to online and digital payments across all sectors of travel has had a substantial impact on the way business trips are booked and paid.
The process is still evolving, as buyers and suppliers seek the newest, technology-driven solutions to simplify, expedite and manage travel payments.
One such solution is the virtual payment card. For the third piece in our focus on travel payments, we dig into the topic of virtual cards and how they are changing the business of business travel.
In the world of business travel, payment management is a critical and complex issue. Systems need to fulfill multiple needs including speed, security, ease-of-use, fraud prevention, reconciliation and policy compliance.
Since the early 2000s, virtual cards have been gaining favor as a solution that addresses all of these needs.
Virtual cards, also called virtual account numbers, are essentially credit cards that not do exist in a plastic, physical form.
Every virtual card is configured for a limited use, which can be defined by a specific date, amount of money, geographic location or vendor. Any attempt to use the card outside its set parameters would prevent the payment from going through.
According to a survey from AirPlus International earlier this year, 31% of companies use virtual cards to pay for their employees’ hotel accommodation costs – up from just 8% in 2015.
It’s easy to see how this temporary, digital payment form can provide a variety of benefits related to business travel.
“Let’s say you have someone in your organization who rarely travels and needs to go to London. … You could equip them with a virtual card and say it’s good for your trip, hotel payment, your ride payment.
“It can only be used in London for the next week, it has 500 British pounds and can only be used at business travel-related merchants,” says Mario Zorn, associate director for product development and innovation at AirPlus International.
Because every card number is tied to a specific use case, it can be directly associated to a billing transaction, making reconciliation automatic.
In fact, WEX senior vice president of travel payments, Jim Pratt, says that was the initial impetus behind the use of virtual card numbers.
“We were really trying to solve a reconciliation problem initially and a payment problem secondarily. There’s a lot of cost savings and efficiencies there,” he says.
That simplified reconciliation process benefits both the employee, who is freed from the tedious task of getting reimbursed for their travel expenses or matching corporate card transactions, and the employer, who receives transaction data automatically and can rely on the built-in controls to ensure employees are adhering to policy.
Virtual cards also dramatically reduce a company’s fraud exposure.
A traditional business credit card may be tied to a corporate account with a high spending limit, putting the business at risk of substantial loss if that card is stolen or it is misused by the employee.
The controls built into a virtual card around dates of use and transaction value minimize that risk.
And because these cards functions like traditional credit cards, it’s simple for travel suppliers to accept them – and to scale.
“There’s a lot of pretty cool tech on consumer side when it comes to making payments, but they don’t offer the ubiquity and coverage – even regionally much less globally – and one of the great things about the virtual card is you can quickly scale. You can be a startup in San Francisco or Melbourne, Australia or Thailand … and make payments to any supplier anywhere in the world,” Pratt says.
In recent months, there has been an uptick in activity related to virtual cards applications in travel.
Last fall, American Express launched American Express Go to help companies handle business expenses for contractors, freelancers and infrequent travelers. Companies can create a virtual card with time and spending limits and send it to the worker in the Amex Go app.
In February, UATP and Conferma Pay announced a partnership to bring virtual card payment technology to airlines and agencies.
The solution, powered by Conferma Pay, gives UATP’s customers the option to use virtual payments with all major global distribution systems, more than 100 booking tools and 500 travel management companies.
Also in February, Amadeus launched an integration of Barclaycard’s virtual cards product, Precisionpay, into Amadeus’ B2B Wallet payment solution.
And in April, Sabre and Visa announced a partnership to enable travel buyers and suppliers to pay and get paid with virtual Visa commercial cards through Sabre Virtual Payments solutions.
But one of the biggest developments is work being done to enable the storage of virtual card numbers in e-wallets, such as Apple Pay, Google Pay and WeChat Pay, enabling travelers to pay at NFC “tap and go” terminals or with a QR code.
“One of the things driving virtual card solutions is the expectation of a frictionless purchasing process. That’s come about from the likes of Uber and other leisure offerings where the actual payment part of it is so far in the background the individual never has to worry about it,” Raymond says.
Conferma Pay has been testing e-wallet integration for the last few months, and Raymond says he expects the first corporate customer to begin using the system within the next month.
“What we are able to do now is place a virtual card into a user’s phone and they can provision that card directly into an Apple wallet or Google wallet and then they are able to purchase utilizing the NFC tap and go technology, for example around London for the Tube or at a large chain restaurant,” he says.
The functionality could also enable travel managers to build more flexibility into their policies, knowing that with virtual payment technology all spend would be captured and visible.
For example, Pratt notes the rise in interest in private rentals and other sharing economy models.
“They [businesses] will be looking at not only how do we book and put people in these kinds of accommodations, but how do we scale things like fulfillment, payment, customer service,” he says.
“They will look to the current methodologies that they use and say can we extend this so the way we’d pay for a stay, for example, at the Hilton Chicago is also the way we’d pay for a home share in Paris.”
In the end it comes down to user experience, and Zorn says it’s important to remember that for the traveler, how the system works is less important than if it does indeed work and work easily.
“The two worlds of virtual and mobile are merging more and more,” he says.
“Because for the end user – it makes no difference. Only the nerds in the industry want to make a difference between virtual and mobile payment. For the end users, it’s just a payment.”
As consumers become more accustomed to clear, simple experiences using technology in their daily lives, Zorn says their expectation – and demand – for the same in their work life will put more pressure on businesses to adopt better solutions.
“You are used to a brilliant user experience on your iPhone or from your Facebook app or your Instagram app, and you want to have a similar wonderful, cool user experience for your biz trip,” he says.
“And especially with young people coming into the workforce, they are more and more reluctant to follow cumbersome or even stupid corporate processes just because they were defined by somebody somewhere at the headquarters if they make no sense in the field.”
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