The role of digital payments in travel e-commerce

How can payment strategy help online travel merchants to win more customers and capitalize on today’s travel trends?

The travel industry continues to undergo a deep digital transformation, encompassing everything from mobile apps to virtual reality. 


Against this backdrop, a core capability of every company in the travel and tourism sector is building a great customer experience. And while the travel industry has a long history of digitizing – going all the way back to the early days of online flight and hotel booking – today’s e-commerce landscape in travel is more competitive and diverse than ever.


Any company making sales online knows the importance of optimizing conversions and revenues for e-commerce. As in many other e-commerce sectors, payments are playing an increasingly vital role in travel – both on the operations side as well as when it comes to building a great online customer experience.


So how can merchants in the travel sector increase their revenue and keep up with key trends in online payments?


Read on to learn more about the evolution of travel e-commerce, and how merchants can stay ahead of the game when it comes to online travel.



Table of contents

The online travel industry today and tomorrow

Travel roundup by region

Key trends in online travel booking

What are the biggest challenges facing merchants in the travel industry?

Improving travel e-commerce performance with better online payments: 6 proven practices

Summary: The future of digital payments in the travel industry

Global business guide travel and tourism PayU cover image 990x640

The online travel industry today and tomorrow

Despite deep losses for the global tourism sector in 2020, the online travel market continues to grow – powering the recovery of the travel and tourism sector as a whole.


The numbers tell a clear story. 66% of worldwide sales in tourism and travel were made online in 2021, compared to only 34% made offline. Overall, the online travel agent sector grew by more than 20% from 2020 to 2021, with further expansion on the horizon. Online travel booking platforms are projected to be worth nearly $1 trillion by 2027


Another interesting data point: online travel agencies (OTAs) have now captured an average of 40% of the total global travel market, including bookings for hotels, airlines, packaged tours, rail, and cruises.


When it comes to which specific travel experiences customers say they have booked online within the past year, hotels top the list (33%) – followed by flight tickets (20%), car rentals (13%), and vacation apartments (11%).

Travel roundup by region

The US market

In 2020, the US was among the most prominent travel markets in the world. However, the pandemic took its toll and online travel agency bookings dropped by 59% during the same year. As with many large travel markets, the industry is now rebounding.


US OTA bookings nearly doubled in 2021 and had reached 82% of pre-pandemic levels by the end of last year.



Latin America

Before the pandemic, travel sales made through digital channels across the region represented more than $22 billion. Despite the harsh drop in 2020, the market is expected to bounce back to similar levels by the end of this year.  



The UK and Europe

Within the UK, online travel penetration is among the top globally. However, when compared to Continental Europe, OTAs play a slightly smaller role in the market. In 2020, online supplier-direct booking share remained at 51%, and online agency share increased by one percentage point to 18%. 


In Europe, the overall market is projected to grow over the next several years. Annual gains of nearly 2% are estimated through 2023, as the total market is expected to reach EUR 324 billion, according to industry forecasts. 



Asia Pacific 

Asia Pacific boasts the highest growth potential in the online travel market. China and India are the most lucrative markets, mainly driven by a large rising middle class, growing disposable income, and greater penetration of online facilities. OTAs represent the most preferred channel for bookings among consumers. 


Back in 2018, the online travel booking market across Southeast Asia was already worth $30 billion –  representing nearly half of the region’s entire internet economy.


By 2025 the market is projected to be worth nearly $80 billion, nearly tripling in less than a decade.

Key trends in online travel booking

Online fraud still rising

Payment fraud and digital crime are a threat to every business doing business online, but they continue to represent a particular challenge for the travel industry.


According to Fraugster’s new Payment Intelligence Report, airlines lost over EUR 6.5 billion to fraud last year only, which is equivalent to the global average cost of 24,000 flight tickets. In total, fraud losses amount to 1.5% of total global airline revenue.



Mobile is the present (and future)

Advancements in mobile technologies continue to drive closer integrations with other apps, including social media. Platforms such as Facebook and LinkedIn have become a key channel for customer service complaints and questions regarding re-bookings, refunds, and vouchers.


From an e-commerce perspective, the increasing share of mobile payments has had a significant impact on travel, as more and more travelers are using mobile devices to pay for travel-related services.



Personalization is key

A key customer demand shaping the travel sector is the need for personalization. Customers expect easy access to content relevant to them – for specific destinations or for a particular target demographic. 



New tech and innovation

Tech-empowered travel will continue to play an important role in the industry, especially around trends such as the adoption of contactless technologies, as well as Augmented Reality and Virtual Reality for virtual travel experiences. 

What are the biggest challenges facing online merchants in the travel industry?

Let’s start with the obvious challenge – the impact of Covid-19 and the limitations it has placed on both consumers and merchants, from interrupted operations and low consumer demand to additional costs. The pandemic continues to impact the industry even as restrictions have receded, with Covid-related disruptions to travel itineraries and ongoing hesitation on the part of some consumers. Moreover, border entry restrictions continue to bring operational complexities across the sector. 


Still, the pandemic has also accelerated the adoption of digital strategies in travel. As with many consumer-facing sectors, contactless payments have become increasingly prevalent within travel, with this trend set to continue. Given the ongoing uncertainty around travel regulations, mechanisms like free cancellation, flexible presale bookings, and insurance coverage have also been met with appreciation from travelers.


With higher order values, it’s not surprising that cart abandonment rates are higher than the average in the travel industry, as many consumers tend to hesitate and shop around before making a large travel purchase.


Chargebacks also still represent a constant headache for travel businesses – recent studies indicate EUR 710 in average chargeback value in the travel sector.

What's next for online travel booking infographic PayU 990x640

Improving travel e-commerce with better online payments: 6 proven practices

A smooth and optimized e-commerce customer experience must focus on all of the steps that the customer takes when interacting with the brand and making a purchase online.


When it comes to payments, that includes a friendly and quick checkout process supported by security measures that lower the risk of fraud while at the same time still providing a seamless experience and not bringing unnecessary extra steps or inconvenience.


It also means meeting customers where they are by offering a wide variety of online payment methods that are recognizable to customers regardless of geography.


Here are 6 proven practices that travel merchants can use to improve e-commerce business performance through better management of online payments: 



1. Know your customers and their payment preferences

By providing customized payment method options via the payment gateway that customers use to complete the online checkout process, businesses can improve their conversion rates in domestic and international markets. 


The more payment methods that merchants offer, the more likely they will appeal to a broader audience and ensure a seamless shopping experience for everyone. As they continue to navigate one of the world’s most competitive online sectors, travel businesses need to keep a close eye on changing consumer behavior and constantly adapt to the demands of this rapidly growing industry.


Crypto and BNPL-related payments are increasingly making their way into the travel vertical. On the US market for example, 22% of consumers plan to use cryptocurrency to pay for part of their travel in the coming years.



2. Prepare your store for an omni-channel approach

Mobile commerce is a key channel particularly for Generation Z and Millennials, which together now represent every consumer between the ages of 18 and 40. These two generations convert via mobile more than any other generation


Merchants do great when they offer shoppers their preferred payment methods and a seamless shopping experience, as part of an overall omnichannel-friendly user journey.


To increase conversion rates, merchants should ensure that their payment page design is well-optimized and the checkout experience is user-friendly on all available channels. At a time when customers expect a smooth, visually appealing, and user-friendly payment experience across all channels, merchants can easily lose customers and credibility by not providing the customer’s preferred payment method, or simply by delivering a clunky checkout experience.



3. Acquire locally

One way that merchants can accept more payment methods while incurring lower fees (and enjoying higher approval rates) is by working with local acquiring banks, or “acquiring locally” in industry-speak. 


Ordinarily, integrating new payment methods or acquiring banks in different markets would require merchants to onboard new payment vendors individually – which can quickly become costly particularly if the merchant is active in multiple markets. For travel companies, one way to get around this is by working with a payment provider who can provide access to local payment processing and acquiring via a single global connection.


An international transaction involves the interaction of different acquiring banks, payment processors, and payment method providers—many of which are unique to specific markets. For travel companies to integrate these diverse layers seamlessly into their online stores and take advantage of global opportunities, a global payment solution is essential.

The benefits of processing payments locally infographic PayU

4. Use payment analytics

One consequence of having several overlapping payment entities is that payment data is often challenging to access, analyze, and use for decision-making. A sophisticated analytics platform allows businesses to see a full overview of global payment transactions, regardless of the company’s complexity or the number of countries in which it operates. 


PayU’s advanced payment analytics module allows merchants to integrate and analyze global payment data via a single dashboard – helping businesses to find hidden payment insights that can be used to optimize sales and revenue through PayU’s platform.



5. Enable smart routing

To ensure the highest possible approval rates and save on fees, merchants should ensure that their payment provider offers intelligent routing capabilities which can direct payment traffic through the most optimal configuration of global and local payment entities.


In addition to achieving lower fees, smart routing can also salvage failed transactions, helping merchants to recover thousands in what would otherwise be lost revenue. PayU’s Instant Retry feature, which restores failed transactions by using a pre-configured set of alternate routing rules, allows merchants to minimize false declines while making checkout faster and more streamlined. 


Optimizing payment approval rates can recover tens or even hundreds of thousands of dollars in potential revenue. One of PayU’s international high-volume merchants recently recovered $1 million in only 30 days after enabling Instant Retry. At the same time, a large travel company prevented 2,600 transactions from being declined by creating a rule to block transactions from Argentina (a country not supported by their acquirers).  



6. Invest in security

As more consumers make purchases online, payment fraud will continue to be one of the biggest challenges within the online travel space. 


To ensure that payments remain secure, merchants should look for a payment provider that acts as a key partner in online security and fraud prevention, while employing technology features that help them master the balancing act between security and convenience.


Merchants can have a much easier time implementing 3D Secure 2.0, network tokenization, and other payment security best practices by working with a payment provider that can enable these features as part of the payment offering. A global payment provider can also help merchants stay compliant with PCI-DSS and other industry necessities, by taking on responsibility for protecting customer data via tokenization and thus helping merchants lower their PCI scope.

Summary: The future of digital payments in the travel industry

COVID-19 decimated the tourism industry in 2020-2021, grinding it to a virtual standstill. Still, many companies have used these unique circumstances to accelerate their digital transformation and implement customer-oriented solutions that tackled the challenges presented by the pandemic, as well as positioning for the future.


A key feature of leading online travel companies remains their integration and use of the latest technologies, to the point that many travel-oriented brands today refer to themselves first as technology companies. 


Looking ahead, innovations around online payments personalization, big data, travel apps, artificial intelligence, and machine learning will play a major role in online business strategies for travel companies over the years to come.


With travel volumes recovering as Covid restrictions begin to recede, the travel industry will likely go back to being one of the more competitive digital spaces in the years to come. To continue developing successful omnichannel business strategies, travel industry players must ensure that checkout processes are optimized for maximum payment methods coverage and a seamless customer journey. 


As more companies focus on prioritizing and optimizing digital as a channel for booking and enhancing travel experiences, payment infrastructure will continue to play an important role. In addition to converting more customers at checkout, travel companies eager to improve e-commerce performance should look at payments as a key operational area that can drive significant improvements in revenue and margins over time.