After a tough couple of years due to the global pandemic, which had a ripple effect on socioeconomic conditions around the world, the travel industry is back up. Figures from UN Tourism show a strong recovery with initial estimates pointing to a 2% growth above 2019 levels.
While this is good news all around for the industry, the events of the last few years have inevitably changed consumers’ habits and expectations. So, what does this mean for the travel sector moving forward?
In this blog, we explore how travel agencies can gain a competitive advantage by integrating financial experiences into their offering, providing enhanced convenience and value-added services for travellers, while benefitting from stronger customer loyalty and capitalising on new opportunities.
What is happening in the travel industry?
Business across industries face the same million-dollar question: how to stay competitive, attract and retain customers? As tourism rebounds to pre-pandemic levels - UNWTO reports a 97% recovery in international tourist arrivals in Q1 2024 compared to 2019 - travel agencies have a golden opportunity to enhance their market competitiveness and boost customer acquisition and retention.
The resurgence of the travel sector doesn’t come free of challenges: the increased digitalisation post-COVID and ongoing cost-of-living crisis have not only reshaped consumers’ preferences and expectations, but also shifted their payments habits and priorities. The key to staying competitive lies in understanding what customers want.
Modern consumers' expectations: What do travellers really want?
There are two main trends shaping consumers’ expectations in travel, directly dictated by today’s economic climate and the increased awareness of environmental impact:
- Value for money: Economic conditions have made consumers more budget-conscious. They seek maximum value for their spending, looking for deals, discounts, and cost-effective travel solutions. With disposable incomes under pressure, travellers are prioritising affordability without compromising on quality. They are increasingly drawn to travel options that offer clear and tangible value, such as bundled packages, loyalty rewards, transparent pricing structures, and flexible payments to spread out costs.
- Sustainability: Environmental concerns are increasingly influencing travel decisions. Many travellers prefer companies that demonstrate a commitment to sustainability. The growing awareness of climate change and environmental degradation has led consumers to seek out sustainable travel options, including eco-friendly accommodations, carbon offset programs, and travel providers with green credentials.
In an increasingly crowded market, travellers tend to ‘shop around’, searching for different providers that can satisfy all their travel needs and align with their priorities. This means that in a very competitive landscape, with travel agencies and booking platforms battling for their portion of the market, travellers aren’t loyal to a single provider in the long run.
Delivering on all consumers’ priorities can be a difficult process for a single travel agency. As travellers face complex booking processes, hidden fees, and a lack of transparent and flexible payment options, embedded finance can address these challenges, providing a convenient booking experience that aligns with both economic and environmental considerations. As a result, travel agencies that seamlessly integrate financial experiences within their offering are uniquely positioned to cater to the modern consumers’ expectations and needs.
What is embedded finance and what are its benefits for the travel sector?
Embedded finance refers to the integration of financial services into non-financial platforms, enabling businesses to offer financial products and services directly within their ecosystems.
In the travel sector, embedded finance brings forth a world of opportunities for travel agencies (more on this later) and plenty of benefits to consumers:
Enhanced convenience
One of the primary benefits of embedded finance is the ability to offer frictionless payment options. Digital wallets, Buy-Now-Pay-Later, and other embedded payment solutions enable travellers to complete transactions seamlessly, without being redirected to third-party payment processors. This reduces cart abandonment rates and enhances the overall booking experience.
Value-added services
Embedded finance can also facilitate the inclusion of value-added serviced directly within the booking process. For example, travel agencies can offer travel insurance, currency exchange services, and travel money cards as part of the booking package. These services not only provide convenience, but also enhance the perceived value of the offering.
Personalised offerings
By integrating financial services, travel agencies can collect and analyse data to better understand travellers’ preferences and spending habits. The data can be used to create personalised travel packages and targeted promotions, increasing customer satisfaction and loyalty.
How can travel agencies utilise embedded finance to stay competitive?
Travel agencies can leverage embedded finance in several strategic ways to enhance their competitiveness and build stronger customer loyalty.
Let’s take a look at some approaches:
Buy-Now-Pay-Later (BNPL)
Flexible payment options, such as Buy-Now-Pay-Later, have revolutionised the retail sector and are now penetrating the travel industry. By offering BNPL options, trave agencies can make travel more accessible and affordable for a wider customer base. These solutions allow travellers to book their trips and pay in manageable instalments over time, alleviating the financial burden of upfront costs. This flexibility is particularly appealing in the current economic climate, where budget-conscious customers are looking for ways to manage their expenses without sacrificing their travel plans. Delivering flexible payment solutions can help travel agencies attract even more customers, reduce cart abandonment rates, and ultimately increase booking conversions.
Travel money cards
Travel money cards are another innovative financial product that travel agencies can offer to enhance customer loyalty and satisfaction. These prepaid cards can be loaded with foreign currencies at competitive exchange rates, providing travellers with a convenient and secure way to manage their money and budget abroad. Additionally, travel money cards can be linked to loyalty programs, allowing customers to earn rewards for their purchases, increasing their stickiness over time.
By partnering with eco-friendly manufactures, or pledging a portion of profits to environmental causes, travel agencies can also appeal to sustainability-minded travellers. This not only adds value to the travel experience, but also strengthens the brand reputation.
Embedded travel insurance
Travel insurance is a crucial aspect of travel planning, offering peace of mind and financial protection against unforeseen events. By embedding travel insurance into the booking process, travel agencies can offer a more comprehensive and convenient service. This can include trip cancellation insurance, medical coverage, or protection against lost and delayed baggage. Going a step further by tailoring insurance offerings to the specific needs of travellers, agencies can provide a personalised experience that improves customer satisfaction. Embedded travel insurance can also be marketed as a value-added service, helping travel agencies stand out against competitors that do not offer such integrated solutions.
The benefits of embedded finance for travel agencies
Embedded finance not only elevates the customer experience, but also offers several benefits to travel agencies making it a strategic choice for adoption.
- Boosted customer loyalty
With the integration of financial services, travel agencies can turn their existing offering into a one-stop shop for travellers. This convenience strongly encourages customer loyalty and attracts new travellers seeking a seamless booking experience. - Additional revenue streams
By offering financial services alongside their core services, travel agencies can generate new revenue streams and diversify income sources, which is crucial to safeguard business stability and continuity in the current economic climate. - Greater competitive advantage
Travel agencies adopting embedded finance are not only innovating, but most importantly responding to the ever-evolving needs of their customers. These companies are going beyond their traditional offering with value-added services that provide a complete experience for travellers, while gaining a competitive advantage in a recovering market.
In conclusion
As the travel industry navigates the post-pandemic recovery and evolving consumer expectations, embedded finance stands as a powerful strategy for travel agencies to stay competitive. By integrating financial services into their offerings, travel agencies can provide enhanced convenience and value, ultimately strengthening customer loyalty and securing their place in a competitive market.
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