Opinion.

Evolution of online payments

The growth of online payments in recent years has seen the use of eWallets surpass debit cards in some markets. Morten Larsen, Head of Product Marketing at Booking.com, explores the potential impact of such trends on the travel industry

by Morten Larsen, Head of Product Marketing , Booking.com

Topic: Trends

Click. Takeaway

  • China is driving a new era of online payments, with 62% of all online transactions being made with an eWallet in 2016
  • Sweden is actively exploring eradicating cash within the coming years
  • Recent feedback from Booking.com customers revealed that one in five don’t complete a reservation due to unavailability of their payment method of choice

The world of online payments is undergoing a rapid transformation. Whereas once customers had scant options – primarily credit cards and bank transfers – to make bookings over the internet, they now have an ever-expanding choice of 21st-century technology, from PayPal to MobilePay.

With great opportunities also come big challenges for the travel industry. Being one step ahead is never easy, particularly when consumer behaviour differs market-by-market. And while much remains to be seen regarding where this will lead in the future, one thing is certain: everything points towards the importance of online payments, such as eWallets and other solutions that are more digitally advanced than traditional credit cards.

BEIJING-FEB

‘China is really driving this new era of online payments’

It’s important to remember just how far the world of payments has come in a relatively short space of time. Just 10 years ago could you have envisioned the notable decline in credit card usage we’ve seen, for example?

New era of payments

When it comes to eCommerce transactions, eWallets remain the preferred payment methods of choice, while bank transfers are also becoming increasingly popular in this field. China is really driving this new era of online payments; 62% of all online transactions were made with an eWallet in 2016. And you can barely talk about payments in China without mentioning AliPay, the country’s leading third-party online payment solution.

Even in Europe, we are seeing a boom in eWallets; in Denmark, MobilePay has quickly become one of the preferred payment methods amongst the younger generations, while Sweden is winning the race to becoming the world’s first completely cashless society, having begun talking about eradicating cash within the coming years.

A 2017 study by Worldpay, one of the leading payments industry reports, shows what is happening and expected to happen within eCommerce transactions. The trends are clear: credit card use will decline from now until 2021, while eWallets will steeply rise. Credit card usage is expected to decrease by:

  • 14% (from 29% in 2016 to 15% in 2021)
  • While the use of eWallets will rise by a staggering 28% (from 18% to 46%)
  • Bank transfers will remain largely the same (dropping from 17% to 16% over the five-year period)
  • And the use of debit cards will fall from 13% to 8%

Transactions made via mobile payment methods also benefit from new technology with more sophisticated authentication, such as facial recognition and thumbprint technology.

Clearly, there’s a wide range of payment options available to customers. And if you don’t offer them, we know it can be problematic. Recent feedback from Booking.com customers revealed that one in five don’t complete a reservation due to unavailability of their payment method of choice.

We are actively working on this. Now we offer customers a wide range of payment options, including local payment methods, and flexibility on when to pay. We translate these facilitated payment reservations via a more commonly accepted and scalable payout method for our property partners.

Facilitating payments goes hand-in-hand with multiple challenges

For our smaller partners that previously would only accept cash, we now facilitate guest payments via payment service providers; these partners can then benefit from being able to reach more customers thanks to flexible local payment methods, as well as through guest payments via credit card.

Localising payments

Facilitating payments goes hand-in-hand with multiple challenges. One issue is that local payment methods are indeed local, so unlike other areas where companies can bring products fast to market and scale them easily, payments require a market-by-market approach and there are a number of factors to consider when doing this. Partnering with payment service providers, so we can continue to understand this area is really important for us.

As part of this work we launched some tests in Germany. We specifically picked Germany due to some very interesting trends in consumer behaviour: the country has a very low usage of credit cards compared to other European counterparts; furthermore, the online payment solution, SoFort, is widely used. Some 54% of online consumers prefer to use eWallet as payment, according to the Worldpay online payments report of 2017.

We launched our first tests, offering SoFort as a payment option on our platform, and we saw an increase of new users booking with us as a result. We also noticed that existing users were choosing SoFort as a payment method over a regular credit card.

It goes to show that offering multiple methods of online payment, and responding to market demand, will keep your customers happy and pays dividends in the long run. We’re excited to be working with the industry to continue developing in this area.

For more on online payments check out this article on Booking.com’s Partner Help Centre

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Morten Larsen is Head of Product Marketing at Booking.com

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