How travel providers can overcome payment challenges in 2024

After the rapid post-pandemic recovery of previous years, the travel industry is experiencing moderate yet sustainable growth in 2024, according to the Skift Travel Health Index.

In fact, a majority of travellers surveyed say they’re more interested in travel than they were before the pandemic. Gen Z in particular — a demographic with significant spending power — is willing to devote more than a quarter of their income towards travel experiences. 

But with this renewed interest comes greater caution. Travellers are now more selective and have higher expectations for their trips. “Consumers are investing a lot in these experiences, emotionally and financially,” reports Joe Mason, Global Head of Product Management & Innovation at Allianz Partners.

As travel companies work to meet these new expectations, outdated payment systems and methods are becoming increasingly problematic.

In this article, we’ll explore the key payment challenges facing the travel industry in 2024 and discuss how travel providers can overcome them with resilient payment operations that enhance the overall customer experience.

1. Complex checkout processes drive customer frustration

Booking travel is inherently more complex than purchasing everyday items like clothing. The checkout process involves multiple variables, including departure and return dates, seat selection, baggage options, and passenger details. 

And for holiday packages, there are even more steps — think selecting hotels and optional tours. The sheer number of fields customers have to navigate often leads to frustration and increased drop-off rates.

To alleviate friction, travel providers should streamline their checkout processes by reducing the steps required to complete a purchase. For example, enabling autofill on forms and offering guest checkout will save customers time and effort. Optimising the checkout for mobile devices is also crucial — 80% of consumers use mobile apps when researching trips. 

Providing the right payment options is also essential. Let customers pay using Pay by bank (frictionless, secure transfers powered by open banking) to unlock a seamless checkout experience with no manual data entry. 

2. High average order values lead to failed payments and cart abandonment

High average order values (AOV) present a challenge for travel providers. First, they induce doubt in potential customers. Prospects may abandon a purchase because they worry costs are too high, or because they have security concerns.

When customers do proceed, sometimes their payment gets blocked. Card payments use 3D Secure (3DS) protocols to comply with strong customer authentication (SCA) rules. 3DS sometimes blocks high-value payments, leading to payment failures, customer frustration, and merchant losses. 

Card credit limits can also impede high-ticket purchases. Nicola Bettari from Lastminute.com notes a significant gap in conversion rates between orders below €1,000 and those exceeding €2,000. “And no, it’s not just about insufficient funds,” he says. Card limits prevent customers from completing the transaction. 

High AOV also takes an operational toll on travel companies. Card networks see it as a risk factor for fraud, so providers can face higher processing costs and interchange fees as a result.

To combat these issues, aim to:

• Put customers at ease with making high-value payments: offer flexible payment options, make pricing and added costs transparent and display trust signals like reviews on your site.

• Provide payment options that are suitable for high-value transactions: unlike cards, all Pay by bank transactions have SCA built in natively. Payments are less likely to fail due to false positive fraud checks or credit limits. Merchants can also add Pay by bank as a backup payment option for when card payments fail or suffer from outages.

• Remove payment intermediaries and their associated costs: while card networks often charge travel merchants a premium, Pay by bank transactions carry no processing or interchange fees and no risk of chargebacks.

3. Customer demands for instant refunds add costs and create operational pressure

Many travellers still carry bad memories of cancellations due to the pandemic, strikes, or extreme weather events. While they’re happy to book more trips, they’re paying closer attention to providers’ refund policies. 

Timing here is key here. A YouGov study found 81% of online shoppers expect refunds in a week or less. And the faster you can provide a refund, the greater your advantage over your competitors.

Unfortunately, many payment methods can’t keep up with these expectations. Traditional card payments can take up to five days to process a refund, while digital wallets might take even longer. Together, these delays hamper travel merchants, increasing their operational burden while degrading their customer experience.

So how can you reduce wait times and increase customer satisfaction? Try automating refund processes where possible to help speed up resolutions. Offering payment methods like Pay by bank, which supports immediate refunds, can also help meet customer expectations and ease operational pressures. 

4. Fraudulent transactions drive up merchant costs

But while merchants need to offer a smoother experience for customers, they can’t make things too smooth. Case in point: the travel industry remains a prime target for payment fraud. It faced the second-highest rate of suspected fraud attempts in 2023, behind only the retail sector. 

These scams can take multiple forms. Bad actors often exploit fraud teams’ offline periods to book flights on short notice using stolen card details. Travel-related loyalty programmes are also vulnerable, with fraudsters taking others’ points to book flights.

Together, these fraudulent transactions cause direct financial losses for merchants and drive up the costs of managing disputes. They saddle travel operators with chargebacks, require greater operational resources and generate significant reputational risk.

Adopting more secure payment methods can help alleviate the threat of fraud. Pay by bank, for instance, offers bank-grade authentication that significantly reduces the likelihood of fraud. 

5. Chargebacks and disputes increase financial strain

As previously mentioned, chargebacks and disputes are a significant concern for the travel sector. In addition to fraud risks, providers face more stringent consumer protection standards than other industries. Regulations like EU Regulation 261/2004 allow passengers to claim money back for flight delays or cancellations, with a claim period extending up to six years in some countries. 

Managing these disputes can be costly. Merchants can try to reverse a chargeback, but that process involves significant time and resources with no guarantee of success.

Then there are the hidden costs of disputes and chargebacks. Preventing and managing them requires significant operational resources for travel companies. And when they fail to resolve them swiftly, they can face financial and reputational penalties.

To reduce this strain, merchants can: 

• Upgrade customer communication: providing clear policies, publishing FAQ pages and offering 24/7 customer support means merchants can proactively address potential issues before they escalate into disputes.

• Opt for chargeback-free payment methods: implement payment methods like Pay by bank, which eliminate the chargeback mechanism altogether while keeping customers safe.

• Offer faster refunds: when you do need to reimburse customers, a prompt response promotes customer trust and loyalty. Automating refunds and providing an instant experience will keep a dispute from escalating, saving time and resources.

Correct the payment direction of travel

As customer expectations evolve, so must the travel industry's payment strategies. Adding secure, fast and frictionless options like Pay by bank to your checkout can help you increase payment conversion and offer a smoother experience to your customers.

Learn more about how adding Pay by bank to your checkout will help you cater to evolving customer expectations.