The pandemic lockdowns created a huge issue with travel cancellations — then created just as big a problem with the boom in travel that followed, exposing a host of travel-industry weaknesses that Visa hopes to solve with new payment flows.
Riding the expansion of embedded payments and new use cases for virtual cards, Visa is pushing to improve travel under both normal and disrupted conditions, according to Edward Chandler, senior vice president and head of new flows for Europe at Visa.
"New flows" is Visa's initiative to drum up revenue by deepening the use cases for existing products,
"We see a huge opportunity to use virtual cards to drive new flows, close various gaps and add value in travel experiences," Chandler said.
New flows for Visa grew about 20% during the most recent quarter, and Chandler sees consumer and business travel as key areas for further expansion, particularly with online travel agencies, which drive the majority of bookings.
Online travel bookings account for about 63% of the $1.2 trillion global travel industry's annual expenditures, according to Lithic, a New York-based payment software firm used by developers to create virtual and physical payment card programs.
Virtual cards are involved in about 37% of travel purchases now, and that percentage is on track to increase sharply in the next few years as virtual card transaction volume is expected to more than triple, according to Lithic's estimates.
"Many of the supplier-acceptance hurdles for virtual cards have started to dissipate and [travel service] providers are starting to value things like guaranteed and timely settlement, streamlined and automated payment operations and workflows and better reconciliation data," said Eduardo Lopez, Lithic's product marketing lead.
The behind-the-scenes transfer of funds between travelers and third-party vendors has always been trickier than it appears, Chandler said. Travel agencies typically collect funds from travelers, process payments in batches and send bank transfers to airlines or hotels.
"In the last five years, virtual cards streamlined many of those basic processes for online travel agencies, and we're pushing now to use virtual cards in more use cases, to build up more travel services that add value," Chandler said.
The timing for Visa to mine more revenue from travel payments bodes well, with strong travel demand continuing this fall.
Virtual cards have the potential to unlock more travel payment revenue because a single payment credential can be extended for multiple types of purchases that previously would have required separate payments, Chandler said.
"The big online travel agencies are now investing heavily in what they call the 'connected trip,' where they want to predict your needs on your next trip, whether it's for insurance, baggage or entertainment — and virtual cards make it much easier to bundle services and add value," Chandler said.
Virtual cards tie each payment to a unique card, easing the reconciliation process for managing cash flow and refunds while providing transparency about payments flow without paperwork, plus chargeback protection.
"Cancellations are a given in travel, and it's easier to do refunds when there's a virtual card on file that can be tracked to that specific transaction," Chandler said.
Visa's deep investments in tokenization in recent years have made card payments more secure in the volatile travel category, enabling virtual cards and tokenization to help create elegant new payment experiences, according to Chandler.
"Imagine that your flight is canceled, and using your phone you could rebook your flight and hotel and get directions to the nearest airplane lounge — all without having to input any new payment information," he said.
There is much work to be done before consumer and business travel payments are fully streamlined and driving maximum revenue, according to Chandler.
"The connected trip is not fully connected yet. Different players are putting aspects in place. But online travel agencies are trying to create the layer where it's all connected, and streamlined payments are making it possible," he said.
Analysts see positives in Visa's strategy as the card network's travel payment volume recovers from the pandemic's slowdown.
"We were encouraged by continued steady growth across Visa's focus areas of consumer payments, new flows and value-added services," Morgan Stanley equity analysts said in a note last month to investors.
Visa is not the only card network targeting growth by expanding virtual cards' role in travel, according to Lithic's Lopez. All of the major card networks offer virtual solutions for travel, including Japan's JCB, China's UnionPay and Universal Air Travel Plan (UTAP), a proprietary travel payments network based in Washington, D.C.
"The vast majority of volume still flows through Visa and Mastercard, but there is a lot of room for growth," Lopez said.
