Question: When is a global travel conglomerate not a simply global travel conglomerate?
Answer: When it’s also a FinTech.
Discussing new initiatives during the recent third-quarter earnings call, Booking.com CEO Glenn Fogel told analysts that the company had made its new internal FinTech unit focused on payments, along with its ‘Connected Trip’ initiative, two of the strategic cornerstones for growth as the travel industry moves away from months of COVID-related restrictions by fits and starts.
Building out an in-house payments infrastructure and bringing travel squarely into the connected economy by enabling consumers to book and pay seamlessly are both revolutionary as evolutionary steps for the 25-year-old platform behind travel brands like Priceline and KAYAK.
And by its own admission, the company still has work to do to create a global end-to-end travel ecosystem that does it all — including payments — and enables monetization in ways that were difficult, if not impossible, before.
Optimizing that ecosystem is a top priority for Booking.com senior Vice President of FinTech Daniel Marovitz and his team of 400, he recently told PYMNTS’ Karen Webster. And making it seamless has taken on increased urgency.
Good Ideas Give Way to Great Experiments
Twenty five years is a long time to beaver away at making the online travel experience better and more efficient. Seamless. And by Marovitz’s own admission, the collective “we” in payments, and the collective “we” as in the traveling public, have gotten pretty comfortable with the improvements in the experience over the last decade, in particular.
That said, behind the scenes, there remains turbulence.
“The one area that I think we haven't made a lot of progress … is the financial friction of travel. It has a few characteristics which are distinctive relative to other categories.”
The future nature of the booking and when payment is collected are chief among these frictions, characteristics of the travel experience that became front and center when cancellations surged as a result of COVID.
New PYMNTS research shows that 44 percent of U.S. consumers who made a travel booking in the last year canceled or rescheduled out of concerns over COVID, wreaking havoc with travel payments and highlighting weak links in companies’ customer experience.
“We went from being this…FinTech and payments business to being a refund business for a couple of months, dealing with these declarations of force majeure, and even reservations which were non-refundable were suddenly refundable. So that was interesting,” he said.
Other points of friction include the seasonality of destinations, the evolving nature of how payments are made and processed, foreign exchange (FX) and payments costs.
All areas where Marovitz said Booking.com is gaining ground through platform experimentation and a smart use of data.
A major proponent of A/B testing, he said that he tells new employees when they join that Booking has no real interest in their good ideas but whether they can “design a good experiment.”
“We have incredibly rich data going back 25 years because the company adopted this data-centric approach 20 years ago,” he said, adding that, like Amazon and Google, Booking is very structured and disciplined about data and database decision-making. And using it to find frictions, solve for them and monetize them for the benefit of their platform customers.
Marovitz said that Booking’s data is helping its travel partners better manage cash flow in these uncertain times.
He said that Booking has developed a predictive algorithm it calls a NITS score — meaning “no intent to stay.” The algorithm helps Booking to predict, based on historical behaviors and cohorts, whether a reservation is likely to stick or not.
Variations of the algorithm are “used for financial forecasting and even the application of pay-per-click or advertising retargeting.” It's been used, he said, in the application of discounting or other loyalty schemes.
In the FinTech context, it’s the beginning of a model that could help Booking address the working capital constraints of travel operators — a potentially huge breakthrough for those whose credit options may be limited, particularly during these uncertain COVID times.
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Creating Two-Sided Simplicity for Travel Payments
With pandemic-related problems still casting a shadow on travel, cash flow and cash management are now top priorities for online travel agents and the suppliers on their platforms.
Given his background in banking, Marovitz said he began thinking about volatile pandemic money flows, the time duration of money, execution risk, and other risks not found elsewhere in eCommerce.
“What people [in the travel sector] don't talk about has to do with cash management, because a nonrefundable booking is paid immediately, and a refundable booking, or a flexible booking, is paid upon check-in.”
Fixing that will be much of the focus for Booking.com’s in-house FinTech.
The mission of Marovitz’s unit today targets “completely unresolved, unanalyzed sources of pain for both sides of the marketplace. The FinTech unit has two objectives. Objective number one, which is the overwhelming objective, is to make the traditional flywheels of Booking.com spin faster.”
Booking.com has the user base and scale to attract more suppliers, giving it more inventory for bookers to choose from. But there were a number of financial flywheel catalysts that he said Booking had mostly ignored.
“If we are able to let bookers pay in the currency of their choice, if they're able to spread payments over time, if partners are able to get paid, depending on jurisdictions … in the currency of their choice … those are all mechanisms which are really powerful and positive.”
Keeping payments in-house is a strategic part of delivering that vision.
“If you look at the themes that are happening in the FinTech world, one of the things that kind of springs to mind is Adyen’s decision to become a bank,” he said, referring to the Dutch payment processor’s decision to apply for a European banking license a few years back. “That decision is less about being able to be an accredited institution and [lending], and more about being able to actually own the technology that owns the accounts so that settlement is assured.”
Owning the account, from a payment perspective, creates monetization options downstream that those dependent on third parties PSPs don’t have. And although Booking.com doesn’t want to be a bank, it functions as a digital wallet now, and those capabilities may see wider applications before too long. Today the wallet is a way to manage discounting and credits. As for tomorrow, well, Marovitz left the door open.
“I think it's very rational to imagine that that's something that can go deeper into loyalty and deeper into friction reduction for sure.”
Today, Marovitz said that reducing the cost of payments — to Booking, to the traveler, to their partners — is where he and his team are focused. The more that they can use its platform's scale to take cost out of the system, the more and the faster their collective payments ecosystem will benefit.
With nearly a third of Booking.com's total gross bookings in Q3 being processed through its payments platform (up from about 22% over all of 2020), the platform is already a connected economy use case that will draw more attention — and onboard more users — in 2022.
But with a FinTech focus and a team of 400 and growing, could Booking be to payments what Sabre is to content management and distribution?
“This is early, early days. We're in a modeling and concept phase,” Marovitz said.
Watch this space.