Payments Are Hot – What’s New, Real And Requires Your Attention In The Area Of Paying For Corporate Travel

Transcript

Martin WarnerPayments are hot. We're gonna focus on a particular area of payments because to try and cover the whole range in the 15 to 20 minutes that we've got available to us would be impossible. So we're gonna concentrate pretty much on virtual payments. The ecosystem of virtual payments and really what's been happening in the space, particularly within Australia, but I know that we'll no doubt have some remarks around what's happening elsewhere in the world and how that contrasts with what's happening in Australia particularly with the advent of regulatory changes from the RBA. There's clearly similar, and in some cases opposite things happening in other parts of the world, including the UK.

So let me start, Darren, with you. The big picture. What should our audience be focused on today and in the next 12 months?

Darren BlairYeah, thanks Martin. Look, virtual cards, which is very topical, and those that joined the payment session yesterday will have heard a comment from Josie, American Express is that it's all about virtual, virtual, virtual. And why is that? Why is it all about virtual? And the reason for that is that business travellers want the same travel expedience as we do as consumers. So we hear the word about consumerization. In essence, what the ecosystem, which she touched on, looks like in Australia today is we have over half a dozen virtual card issuers, partners, that you can work with. A few of them are obviously present at the conference over these two days.

We also have almost 25 travel management companies that are connected to use virtual card platforms as well as all the online booking tools. So what does that mean? Virtual cards aren't new, as I said, they've been running for over ten years. What is new is the complete automation and actually the deployment of these virtual cards and it gives the business traveller that invisible, frictionless expedience which we all want, but at the same time the corporate buyer or the travel manager is still able to retain control and visibility of that particular transaction. We had yesterday, from journey around Amazon Go, where, you know, you walk in, you walk out, that's the experience. So it's book, fly, stay, and pay. But the beauty of virtual cards is that the traveller doesn't have to pay. So they book, they fly, they stay, and they walk away.

Martin WarnerYou represent the invisible link to all of that, from [Confirmer 00:02:52] being, FinTech dedicated to travel. You're kind of the integrator that enables that to be more of a consumer-based experience. Acceptance is often being held as a reason for virtual payments being slower to gain traction in the marketplace. I think that's a thing, in my view, that's a thing of the past. But let's talk a little bit about what you've seen that's dealt with that adoption and acceptance challenge. [crosstalk 00:03:26]

Darren BlairThe travel management companies that have come on the journey over the last 18 months, will attest to some of the teething problems that we had last year in launching the product. One predominantly being the fact that it was run off fax numbers, so in essence, as a FinTech, when you're selling this shiny new solution which is fully integrated, fully automated, and at the end it's actually spitting out a fax, doesn't really-

Martin WarnerEven though that fax is automated.

Darren BlairEven though that fax is automated. It's almost like giving someone a fancy new smartphone and telling them they have to put 50-cent coins in it to make calls. The end of it was really just broken. So we've done a lot of work personally, we've worked with our card issuing partners, we've worked with the travel management companies, the card schemes, MasterCard, American Express, to move that from fax communication to a secure email. Which, you know, no fax failures, GDS information on fax numbers was either incorrect, or the hotel didn't even have it plugged in anymore. So that was really the issue we were experiencing.

So there was a lot of terminology and people shouting out that virtual card numbers were not being accepted by hotels. That wasn't actually the case. Now I'm not gonna say that a hotel didn't say, "I'm not accepting that virtual card." Because it did happen. Not a lot, but it did. The biggest issue was that they weren't actually receiving the virtual card number because the faxing, the fax number was failing. So in australia as it stands today, we've got almost 2000 properties that have actually signed up to receive that secure email which is taking all that pain away.

Martin WarnerYou went a step further though, didn't you, with developing a smartphone app to physically show, enable the traveller to show on arrival the image of the virtual card, even though the card doesn't exist in plastic form, there was an image of it. How did that help?

Darren BlairThat's done, but we did that in a couple of ways. So we do have our own app, which is free on all the app stores that travellers can connect to. We also can send the card image to any other app as well, so Tripcase, with Saver, for example. That does one of two things; one is it gives the traveller comfort that the hotel room has been paid for them and they don't need to pull out their own card. One of the first things that breaks the system is when the traveller walks up and hands their corporate card onto the front desk, straightaway the whole automation and the virtual card process is forgotten because the hotel will just charge that corporate card. Simple as that.

Martin WarnerOnly one card.

Darren BlairYep. And again, the image is actually on the actual phone itself, so again the traveller, worst case scenario, if they've not received the fax or the email, can hand over the phone and the hotel can process the card payment.

Martin WarnerBecause it's not unusual to have to use two cards in a process. The corporate card for the room, or the room and breakfast, or the virtual card, and then a personal card for any extras that can't be expensed. So that's not unusual.

Darren BlairAbsolutely, and John from HIS touched on it earlier, you know, the whole, the walled environment that we live in today. Virtual is moving forward, is currently used for centrally booked payments, so air and hotel, absolutely. Ground transportation is, I guess, the next pain point in the travel space, but the, in terms of the development and the path that we're taking, is that that image of the card on the phone will become the contact-less payment. We've seen examples of that in the connective café next door, around actually making that card contact-less.

Now, for places like australia, that's fantastic, because every single terminal has that capability. Places like Sweden as well, where they have less than 1% cash used, is an area where you can use that contact-less payment. In the US, possibly not, because they've just moved to chip and swipe, so they're just moving to that environment. But certainly the way we want to move forward is it's air, it's hotel, it's incidentals, fully reconciled. What that means for the business traveller is when you return from that three-week trip travelling southeast Asia, signing up all this business, you don't then have to spend six hours doing expense reconciliation.

Martin WarnerSo contrasting payments here in Australia versus the US for example, it's rather like night and day. I've just spent three years living in the US and realise how nighttime the US is when it comes to payments and I'm still paying wire fees. ... I'm gonna come to you, [Vasa 00:07:49] and ask about the RBA changes and the intent of the, not just the RBA, but Australia to continue to lead in payments and PP being a good example of that. What are you seeing? I know that you can speak specifically to diners and what you see in the broader city world, but what do you see in Australia around the next steps that not only are happening right now but that we'll see in the immediate weeks and months to come?

Vasa SrbinoskiYeah, look, it's interesting you should mention the United States because the RBA discussion paper and the outcomes of that specifically point to the United States and the paper says that they don't want the 'perverse effect' that competition has had in the United States on the credit card payment system, which has been to drive up the cost of acceptance. So because the issuers want to deliver more rewards to card holders, part of that, there are many things that go into the paying of reward costs, but one of the costs is the interchange, which is the cost of accepting payment. It's passed on from the acquiring bank to the issuing bank, and in the United States, because it's been unregulated, has gone up and up over the years, and it's now over 2%. So the objective of the RBA, and keep in mind this is really the biggest change to credit card payments since 2005 in this country, which is when credit card surcharging was allowed.

So the objective of this set of changes was to improve the price signals to consumers so that they would know how much different types of payment options were costing so they could choose the most efficient, the cheapest, or the one that would have rewards with it, but they know that they might pay for that. And in the travel industry, what that's created is it's already created some cost savings in air, for example, where we're all used to seeing the Current Affair stories of people complaining that they, in the past, they would pay $7.70 on a domestic flight that cost them $80 which works out to be almost 10% of the transaction cost. But now that's come down for Qantas and Virgin to 1.3.

Martin WarnerPercentage of the ticket price.

Vasa SrbinoskiThat's right, so it's down to 1.3%.

Martin WarnerWe won't get into the details of what the knock-on effect is on all of the products that are in the marketplace, suffice it to say that as that cost comes down, the revenue comes down for the card issuers and the schemes. So the richness of the rewards programmes is highly unlikely to continue at the same level because there is less revenue there to fund it. So that's kind of a knock-on effect that people should expect to see.

Vasa SrbinoskiThat's right, and we've seen that in the banks where companion cards are issued. So the big four banks, all of them apart from CBA have removed or are removing their companion cards off the market. Fortunately directly-issued AmEx cards and Diner's Club cards, JCB, Union Pay, they're exempt. That's right. So we can continue to offer rewards. And many merchants absorb the cost.

Martin WarnerDo you think that that ... is likely to continue for the foreseeable future or do you think that that's another round of changes that the RBA might want to take a look at? To 'not exempt' certain cards in the future?

Vasa SrbinoskiThere's nothing in any of the releases from the RBA that suggests that they will. The next step that is suggested is reduction in the interchange target for the Visa and MasterCard issued cards, moving more towards, moving away from the US and more towards European Union model where their target is 0.3%. And our target is currently 0.5% with a 0.8% ceiling. So we're moving more towards an EU model rather than a US model.

Martin WarnerVery good. Let me switch gears a little bit and talk about this notion of end-to-end solutions. I suspect that the phrase itself means different things to different people in this room, so Darren, let me start with you, just to ... how would you describe end-to-end, first of all?

Darren BlairYeah, look, from an end-to-end solution perspective, they do exist, but do they exist from one specific platform or provider? Absolutely not. So you'll have to use your online booking tool to get that automation, you'll obviously use your travel management company which is integral into the piece there. Pick the right payment product that gives you the outcomes you want at the back end. If an individual is using their own personal card, for example, from an accounts payable perspective you're getting no automation, no data, so while you as a corporation might not have to go through the effort of setting that account up, you're getting all the pay on the backend. Virtual's obviously the space that can form up [inaudible 00:13:20], but certainly it's not virtual for all because as you mentioned at the top of the session, you walk up into a taxi or to a restaurant with a virtual card, and they'll just laugh at you.

So you have to use a corporate card, you have to use the virtual cards, you have to use the lodge accounts whether it be a Diner's CTA, a UATP, BTA. There's products there that you should be using, and what I see in the market, and I come from a bank and scheme background, is most corporations are not using those products. Or certainly not all of those products.

Martin WarnerIf I was to ask about that end-to-end solution, what are the examples that are actually out there, living and working and breathing in the marketplace today?

Vasa SrbinoskiSo from a payments perspective, we see end-to-end as not just incorporating, not just at the transaction level but at the programme life cycle level. And we have examples of this particularly with some of our public sector clients because we look after the whole Australian federal government. We have organisations and some public sector ones where we ... and Darren's talked about virtual and some new technology, but this sort of relies on quite, on existing technology. So we have examples where our clients HR systems are integrated with us, so that when a new person starts, it generates a message to us to set up a corporate card. The corporate card details automatically, this happens daily, lodged with the travel management company, their traveller profile is created, and that card's ready to go. And that can happen overnight. So a new employee starting can be ready to travel the next day. So that's just an example of end-to-that-end, and then you know, that person is ready to travel, and with some of the solutions Darren talked about, with central payment, you could be booking a flight for that traveller, they could fly the next day, and with the rich data that comes through the payment platform, that can be auto-reconciled into that client's AR pay system.

So that's the sort of straight through processing that happens now. But to Darren's point about technology, ideally in the short to near future from now, payments will be frictionless in the day to day travel that people undertake. And in addition to virtual cards we see things like beacon technology being used so that the hotel, for example, knows from your phone that you're about to arrive and not only do you have a virtual card payment in the background, but they're so efficient that before you even walk in through the doors of the hotel, you know you've been assigned a room, your room key is available on your phone [crosstalk 00:16:28]-

Martin WarnerAnd we're starting to see applications of that come into the marketplace. I'm gonna just wrap up at this point, this was always going to be a short session, but it was even shorter because we're trying to catch up for some overrun earlier in the morning.

We clearly have scratched a little bit of the surface of the world of payments and particularly the world of virtual payments in the last 15, 16 minutes. There was a lot of discussion yesterday about blockchain and we deliberately avoided blockchain as a subject today, I'm just mentioning it in passing that we do expect to see blockchain initiatives affect travel and affect payments in the future, but I don't think we're going to see anything come to market in the next 12 months, specific to payments and travel related to blockchain. But I do think that it will be relevant in 12 months' time, to have a really deep dive into what's happening in that area. So Vasa, thank you. Darren, thank you as always, and thanks to you for listening to us have this conversation. Thanks everybody.

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