4 Virtual Card Use Cases in the Online Travel Industry
Many online travel agencies (OTAs) are using virtual card solutions to make their payment operations more flexible, scalable, and cost-effective.
While traditional options like the Billing and Settlement Plan (BSP), ACH, and wire transfers rely on older, less flexible infrastructure, virtual card solutions provide customization, flexibility, speed, and robust controls.
This translates to a number of benefits for OTAs:
- Streamlined invoicing
- Faster settlement times
- Reduced fraud on international bookings
- Richer transaction data to simplify reconciliation
Virtual cards also allow travel companies to make other optimizations beyond what traditional payment solutions can offer. In this guide, we explore four of the most common use cases for virtual cards in the online travel industry.
What is a virtual card?
Virtual cards have all the same characteristics of physical cards, such as the 16 digit number (PAN), CVV, cardholder name, and billing address, except they’re stored online instead of your physical wallet.
Just like regular cards, these cards can be credit, debit, prepaid, or gift — whichever best fits your use case.
Four common OTA use cases for virtual cards
There are four common ways online travel agencies use virtual cards:
- Making payments more efficient and scalable
- Optimizing the payment experience
- Supporting new business offerings
- Issuing cards directly to customers
Increasing payment efficiency and scalability
This is perhaps the most common use case. Virtual cards reduce operational expenses inherent to manual payment workflows and minimize errors, which in turn helps reduce costs. This is key for the OTA space that operates with relatively thin margins.
Typically, OTAs will have manual support teams process orders when they come in by manually keying in data and making purchases from tourism suppliers. For companies with volume like Booking.com or Kayak, this process would need to be repeated thousands of times per minute, each time allowing for costly errors infringing on revenue.
Virtual card solutions allow a logic setup to programmatically create a card when an order comes in, then complete the transaction in a fully automated way. After a completed transaction, data comes back saying this merchant has run X card on Y transaction, that data is fed into accounting software, and the transactions are automatically reconciled. These programmatically generated cards enable scalability.
API-generated cards create an efficient payment process compared to the BSP system. Payment optimization is often cited as the top benefit of accepting virtual cards.
- Create a more scalable payment stack
- Manage cards programmatically
- Eliminate manual payments and reconciliation
- Optimize cash flow
- Get real-time visibility into payments
Optimizing the payment experience
Payments are core to OTA operations; optimizing the payment experience can help expand margins and increase conversions. In fact, offering flexible, secure payment options in lieu of more vulnerable options like wire transfers is one of the easiest ways to drive more conversions at checkout.
More importantly, the ability to optimize the flow of payments throughout the double-loop is also a precursor to differentiation on both the customer and vendor sides.
Let’s say a customer wants to bundle an airline booking with a car rental and hotel stay. As they go through the checkout flow, they might also add on upgrades offered by a loyalty program and an insurance program from yet another vendor.
In this use case, OTAs leverage virtual cards to distribute payments to all these vendors efficiently and accurately. This makes it easier to manage refunds if a customer needs to cancel one of the products or if an added product isn’t available and needs to be refunded.
- Optimize checkout flow
- Offer flexible payment options
- Increase conversions
- Streamline vendor payments
- Better manage refunds and cancellations
Supporting new business offerings
Many modern OTA businesses generate a significant amount of revenue from ancillary services and upgrades.
These businesses often use virtual cards to remove payment bottlenecks on new product lines requiring a diverse set of vendors. Examples include corporate-offsite event packages on the business side and destination-tailored experiences and activities on the leisure side.
For example, Gordian Software uses Lithic’s API to automatically create single-use cards tied to individual transactions, making it easier for them to track and manage partial refunds and cancellations.
Let’s say a customer comes to purchase a hotel and flight but opts at checkout to purchase add-ons like travel insurance, seat upgrades, and an eye mask. In this situation, virtual cards allow you to orchestrate payments and refunds across any of those downstream suppliers quite easily.
And if a card is compromised during any leg of this journey? Closing the card, replacing the card, and the use of a newly generated card can happen in just a few minutes.
- Expand product offerings
- Support more add-ons and ancillary services
- Better manage supplier relationships
Issuing cards directly to customers
All of the previous use cases have addressed the second part of the loop. But there’s also a clear opportunity for OTAs to insert themselves into the customer-facing part of the payment process.
For example, a larger OTA company with good brand recognition and a loyal customer base can maximize the amount of interchange revenue earned by issuing a branded card. Then, the OTA earns revenue from transactions happening on and off its platform.
Many companies launch branded cards coupled with a rewards program to incentivize card usage. A sample of this would be offering a 5% cashback reward every time a customer uses the card on platform and 1% cashback every time they use it on select merchant categories.
Airlines don't specifically report on card revenue, but in 2017 American Airlines generated $3.1 billion from its branded card, Delta generated a similar $3 billion, and United earned $2.3 billion.
- Earn interchange revenue on transactions
- Reduce payment processing costs
- Turn payments into a profit center
- Increase customer loyalty
Read our latest blog to learn about the how virtual cards simplify the two-sided payment flow in the OTA business model.
If you’re interested in learning more about how virtual cards can help with any business use case, contact us.