On-demand ridesharing may garner much of the attention of corporate travel and expense management these days, but the hotel industry is gradually capturing some of that focus on how to disrupt the corporate travel and payments space.
Virtual cards, for instance, have become a prime way for businesses to pay for booked hotel rooms, while FinTechs are also exploring how to automate and streamline the acceptance of those virtual card numbers.
But that’s not the only way B2B payments innovation is changing the way hotels work with their corporate clients.
A new white paper by the Hotel Electronic Distribution Network Association, or HEDNA, released this week dives into some of the disruptions imposed on the hospitality industry by the evolution of B2B payments. Payment Trends and Future Best Practices in the Hotel Sector, offered by HEDNA’s Global Hospitality Payment Working Group examines hotels’ back-end processes that can be quite complex.
Part of that complexity, the paper explained, is due to the variety of relationship models between trading partners, with corporates typically working with a third party — a travel management company or other travel agent — to book their accommodations.
The agent model sees a travel company act as the agent of the hotel and links them to business clients. The merchant model, meanwhile, sees the travel company act as a merchant of record of a transaction between hotel and corporate clients.
These various relationships also mean a variety of ways hotels are ultimately paid. They can be paid on net credit terms, which sees the travel company taking a certain number of days to pay the hotel. But because of the size of the industry, and number of players in it, it is not possible for every hotel to establish a contractual partnership with every travel company.
Another model of payment involves the hotel getting paid only when the customer checks out. In this instance, HEDNA explains, hotels must execute an online payment guarantee that was provided at the time of booking.
“In this context, credit cards become a major ally of the travel industry, as they are the simplest and most efficient way to guarantee a booking,” the report stated. “Credit cards and, especially, virtual credit cards have become the most widely used payment vehicle in the travel industry in the context of dynamic contracting, where there’s no contractual relationship between trading partners.”
Finally, there is the pre-payment model, which means online payment at time of booking.
“This payment modality is becoming increasingly popular, as many prominent hotel chains require it to offer their best dynamic rates,” the paper stated.
As part of its broader Working Group, HEDNA established a B2B Payments group to understand pain points hotels experience in each of these payment models.
“It’s not unusual for a booking to go through a series of more than three transactions and payments before reaching the hotel,” the paper said of the complexity of B2B payments in the hotel industry.
The vast majority of these payments are made as money transfers (wire, ACH, SEPA and others) and credit cards (including virtual and physical cards).
While money transfers offer a low cost, HEDNA explained that these transactions are irreversible, expensive when conducted internationally and require customers to keep an updated database of hotel bank account numbers. “This is especially challenging in an industry with over half a million suppliers worldwide and characterized by continued changes of ownership,” the paper noted.
Reconciliation and dispute resolution are similarly complex for the hotel when money transfers are used, and they cannot act as a way to guarantee booking — and therefore are typically used only when a hotel has a contractual relationship with a travel company.
Cards, too, have their setbacks.
Most notably, there is a cybersecurity issue, as often both physical and virtual card numbers have to be faxed or emailed over to a hotel, resulting in insecure and manual data entry. It’s an error-prone process, the report said, and can be stored in non-PCI compliant ways. All of this can mean card information isn’t sent to a hotel in time, or card information can be stolen or lost — bad news on both ends.
Credit cards are also manually processed by the hotel, similarly resulting in errors, chargeback disputes or surprise FX fees. Cards are also expensive, lack level-3 data and support only a limited number of currencies.
In order for the hotel industry to address these challenges, and for HEDNA to propose a potential solution, industry experts agree that B2B payments must be able to address authentication, reliability, traceability, security, compliance, transparency, plug & play connectivity and other requirements.
The HEDNA working group proposed a Value Added Network concept and has established another working group, the Open Payment Alliance, to further explore how the industry may be able to address these hurdles, focusing on an open industry protocol for all industry stakeholders.