While hardly a new technology, virtual cards are poised to become a much more dominant force in the payment sphere in the coming years.
It’s projected that there will be 32 billion virtual card transactions around the world this year, and by 2027 that volume will be more than 121 billion. By then, the United States alone will generate $71 billion in B2B virtual card revenue, representing nearly three-quarters of total global revenue, according to Juniper Research report.
Hotel check-in is a common pain point for virtual card use, often resulting in guests finding themselves unable to check in while front desk staff try to decipher payment information
The problem with using virtual cards for hotel payments is that the technology still has not quite caught up with the process. The front desk gets the virtual card information, but there is no way for them to decipher whether it is a virtual card or a standard credit card. The fax machine, surprisingly, still is frequently used to send authorizations, but depending on their training level, the front desk employee might not even know to check for it there.
To add to the growing concern, COVID multiplied staff turnover, particularly among front desk employees, which has further complicated the situation. Ensuring qualified replacements and expertise were secured has remained a priority for the hospitality industry, which continues to delay the industry’s move away from manual efforts and move ahead with strategies that will elevate the industry of hotel payments.
The ability to communicate with property management systems is “the first step in the right direction” in easing the pain points around hotel virtual card use – something that today is not easily applicable while navigating through multiple PMS systems, across different brands and regions globally.
Until this is achieved, buyers still need to work closely with hotel partners and other suppliers to make the process as seamless as possible.
Challenges to virtual card adoption
There are other obstacles to overcome in hotel virtual card use. The card terminal at some hotels, for example, might be set to the wrong merchant code, which would block the virtual card from being used. And virtual cards configured only for hotel stays can’t be used for incidentals, which might leave guests surprised or unprepared if they must provide a second card at check-in.
From a travel agency’s point of view, most of them acted as intermediaries, relaying the consumer’s payment information to the hotels, airlines, car rental and other suppliers that constitute an individual’s itinerary. But as the network of suppliers continues to grow, this “pass-through” model has become riskier and less frictionless for agencies.
For that reason, we see a growing number of travel agencies adopting the merchant of record (MoR) model, where the travel agency collects the customer’s payments for all services booked through them, authorizes the transactions and then pays the individual suppliers tied to the booking.
Travel agencies cannot afford the operational and financial drag of long settlement periods, lack of financial protection and burdensome administrative processes. Agencies rely on funds at a quicker pace. They were already faced with staying relevant, and their cash reserves were critical due to the volatile times the industry was facing.
While the change was inevitable for hotels, COVID accelerated the shift. The MoR model and digitization of B2B travel payments with virtual cards is step one. Virtual card numbers are digitally generated, single-use card numbers that are accepted everywhere traditional payment cards are accepted. But experience has shown that there are still many countries and travel suppliers out there that don’t – or cannot – accept virtual cards.
The needs of emerging markets
Since the growth in the emerging markets like Africa, Southeast Asia and Latin America continues to be a focus for the travel industry, travel suppliers need to adapt to their preferred way of getting paid. The adoption of virtual cards is far less developed, as digitization is just becoming a priority. Allowing the travel suppliers like hotels, airlines, car rental companies and many others to select an alternative next to virtual cards not only creates loyalty, but also removes the hurdle they are currently facing by accepting virtual cards.
From a time-to-market perspective, securing direct banking rails can delay a company’s deliverables. But these payment rails are crucial, especially in the emerging markets where most payment providers don’t have direct presence or visibility.
Even though the pace is ramping up, this process takes time and money. Partnering with a strong payment player in the emerging markets can speed your time to market in these markets. The demand for global payment coverage is here, and the push to innovate is increasing rapidly.
Some of the best innovations seen in recent years have been in the combination of account-to-account payments and the provision of working capital.
Technologies that analyze invoices have been deployed to highlight opportunities for early payments to be made to suppliers. These payments are funded by a panel of lenders ranging from traditional banks to new entrants. The faster payment rails were once a commodity generating little revenue for anyone.
Now, they’re an enabler for several value-added service providers ranging from the technology platform to lenders, new and old. If one of them doesn’t win, none of them wins.
We know this will not all happen overnight, as many factors go into the years of complexities that have been built around this sector. However, the shift is here, and it will not slow down. If anything, the need will quickly intensify.
TerraPay is embracing this approach in launching new payment products and pairing them with our global payments’ highway. The products are built to enable us to work with all parts of the evolving payments infrastructure.
For instance, our approach to supporting business-to-business payment flows is not simply to offer a one-size-fits-all solution. Issuers, acquirers, master merchants, corporate buyers and suppliers could all leverage different modules of the card-to-account product, and TerraPay has the appetite to collaborate with each party to solve the needs of the end-users.
The customer push and regulatory pressures are leveraging new technologies, which are driving the continued growth of real-time payments. The demand for real-time payments is here.
All sectors of the industry can vouch for the need to innovate in today’s labor-intensive hospitality payments process. It’s key for the hospitality industry to prioritize and navigate through all the payment pain points and forge ahead a path where innovation, acceptance and real time payments can leverage the antiquated hotel payment processes.
