Blockchain Technology Re-inventing Travel Payment Systems
02 Aug 2017
Several technologies are disrupting the way people do business, and the travel industry is no exception. Many digital payment systems have been introduced over the past few years, but the anecdotal evidence of various scams and fraudulent transactions in these systems have led to loss of billions of dollars. In 2015 alone, fraud on payment cards amounted to $ 16.31 billion. A digital wallet provider, MobiKwik, also lost over $3 million in what was reported as a technical glitch in the payment system. All these uncertainties are the reasons many travelers still dread transacting digitally even with the numerous benefits that come with moneyless transactions.
For the travel industry to benefit from the digital payment systems, it must adopt new technologies that guarantee security ? and this where the blockchain technology comes into play.
A Look at the Global Online Travel Market
A recent report by Allied Market Research indicates that the global online travel market will hit the $1,091 billion mark by 2022 ? with Asia-Pacific regions expected to record the highest growth. Direct travel Suppliers like hotels, car hire companies, and airlines that offer online booking facilities will dominate the market. Online Travel Agencies (OTAs) are also expected to record a substantial growth over the next 5 to 6 years.
The travel industry is desperately seeking solutions to lower the cost of doing business and the ability to increase customer loyalty. Although several technology companies have come in to partner with hotels and airlines, their primary goal has been to squeeze their revenue positions in the seemingly lucrative industry. Now, more than never, the travel sector needs a partner that does not want to disrupt their business operations but instead want to work with the industry to lower costs and improve efficiencies by providing them with the products, tools and strategies to achieve their objectives and compete with these large disruptive technology companies.
What Blockchain Offers
By now, you've probably heard the terms "cryptocurrencies" and "blockchain" being thrown around corporate corridors. Though the technology is now popular in most businesses, a few people actually understand how it all works.
Now, imagine that your regular $100 dollar note carried with it a ledger of highly-encrypted data and that every detail of previous transactions was stored in the ledger. Additionally, every previous user of the note keeps the same record, and the same will be getting updated for the entire lifetime of the note, in real-time.
Having such a chain of transactions will help you tell if the person you're transacting with is even trustworthy to do business with ? based on their history with the note. This is the fundamental feature that makes blockchain technology foolproof.
A blockchain is basically a distributed database where real-time transactions are recorded and maintained. Each blockchain entry is time-stamped and highly-encrypted before storage, making the records tamperproof and immutable. Since the data is kept publicly and in a distributed ecosystem, users have full control over the security of their information. And that's not all ? if an attacker manages to tamper with a particular data-block on the chain, the thousands other sources in the chain will be used to repair the damage and maintain security. Blockchain is exceedingly transparent, utterly secure, and immune to technical glitches, which you can't probably achieve with legacy payment systems or digital payment architectures.
How Blockchain Can Reinvent the Travel Payment Systems
Blockchain technology can offer several benefits to the travel industry, but the most important features are security and stability. The decentralized nature of blockchain technology means that the system can neither go offline nor get lost through accidental deletion or malicious attack ? the transactions are always traceable. Other than secure sharing of critical information between travel agents, flight companies, and hotels, the blockchain platform allows for simple and secure payment systems hence improving the level of trust among various players in the industry.
Stored Value Tokens
Swissblock Capital (SBC), a blockchain-based tech company in the hospitality and travel industry, is developing its own stored value token known as GTX that will be able to accelerate payment between all parties, but specifically for Agents and Suppliers while reducing the risk of fraud. The idea is to create a stored value token that can be used by all participants in the hospitality sector in providing their services without the need to rely upon third-party intermediaries such as members of the finance sector.
A stored value token is a sure way of preventing double-spending activities as well as creating a uniform global token exchange mechanism for various hospitality services on offer by the hospitality sector. Additionally, smart contract technology assists in the settlement process between parties.
Improved Transparency through Smart Contracts
Smart contracts are specially designed software components that work on a blockchain without any human intervention. In the hospitality and travel industry setup, smart contracts can substantially reduce the chances of fraud happening and better create a trusted environment for all participants. Consequently, smart contracts are pieces of code that monitor the performance of a contract and will automatically deal with the rights of the parties who have formally contracted. A smart contract can enforce a functional implementation of a particular requirement like payment. Furthermore, they can retrieve evidence of performance or non-performance.
Although blockchain technology has a steep learning curve, it provides a perfect platform to create solution-based systems that can reduce the costs associated with travel industry transactions. At the same time, blockchain can help build loyalty and reward structures for agents, consumers, and suppliers to help them adopt lower costs and more efficient and timely transactions.
Reducing Fraud
The hospitality sector currently relies on various credit card Schemes (VISA, MasterCard (MC), American Express (AMEX), JCB, CUP) and other T&E (Travel and Entertainment) cards. With the widespread use of the internet across the globe, these scheme cards are often used over the internet, by phone, or through an agency, which can result in significant levels of fraud. The global average for card fraud in these transactions is $6 per $1000 (.6%) on average over all transactions, although it is higher for certain countries. With a traceable and decentralized blockchain ecosystem, these losses will be significantly reduced.
Reducing Transaction Fees
In terms of transaction costs, the hospitality sector financial settlements can involve many parties. The Consumer will purchase a service on a website from an online travel agent with a credit card (2 banks, 1 Agent, 1 card scheme). The Agent then sends the funds to the Supplier with the booking (1 card scheme, 2 different banks) which means 6 levels of fees. Additionally, loyalty point accumulation programs introduce other intermediaries to the chain, which further increase the transactions costs. By reducing intermediaries, a blockchain-based system can significantly reduce costs.
Whether it is a settlement between a French hostel or hiring a yacht in the Mediterranean by an Australian consumer, the transaction needs to be settled with an exchange price. This price is determined by many parties each with a margin. So, how can blockchain help reduce these costs?
The SBC ecosystem, for instance, plans to connect to a pricing engine that will set the end-to-end exchange rate even if this transaction is delayed. The pricing engine will be a totally transparent method, which is not like the margin manipulation methods currently in existence on most, if not all, online merchant sites. Hospitality sector products and services are not stable, with prices and demand changing rapidly hence the need for a stable end-to-end exchange.
Final Word
Blockchain technology is quickly reinventing the payment settlement systems between Travel Agents and their suppliers such as airlines, hotels, rental car companies etc. Cryptocurrencies like GTX will allow corporate and leisure travelers to pay for a variety of travel services, seamlessly and securely. SBC is at the forefront of creating and implementing innovative technologies for hospitality partners across the world. The world economic forum predicts that by 2025, more than 10 percent of the GDP will be stored on the blockchain, and this is an opportunity than the hospitality and travel industry cannot underscore.
>About the Author: Daryn Griggs CEO
Daryn has 0ver 25 years payments experience and most recently hotel operations in the hospitality sector. Daryn has extensive background in payment processing, management of start-ups, hospitality and hotel operations and has held key positions in well established companies in this industry such as Visa Inc, Rev Worldwide and Minor Hotel Group. Daryn was heavily involved in developing the world first multi-currency travel card platform as well as being responsible for all revenue for the 52 hotels operated by Minor Hotels in Australia and New Zealand.
