Who gets the savings? The great convergence, part 3
Every business trip creates three basic requirements. Someone has to book and service it, someone has to pay for it, and someone has to account for the cost. How well those three things work has always depended on the trip. A simple point-to-point booking can take minutes, while a complex itinerary, disruption or refund can require considerable support. Payment and expense bring their own complications through corporate and personal cards, billback, virtual payments, paper receipts, reconciliation and different forms of settlement. What’s changing now is how these three areas are being brought together.
Historically, booking, payment and expense were disparate functions that had to be interwoven to effectively manage business travel. Now, expense companies are moving further into travel, payment companies are moving further into expense and banks, and other travel solutions providers are investing across all three. TMCs are making their own decisions about which capabilities they build, buy or access through partners, while suppliers are looking for new ways to reduce the cost of accepting payment. The result is another stage in the Great Convergence, centered on who controls the corporate travel transaction and the money flowing through it.
Banks, expense companies and travel move closer together
Concur was one of the first companies to demonstrate the attraction of bringing booking and expense together. Today the market is moving much further. American Express acquired expense company Center and is connecting those capabilities with its commercial card business, including Graphite for small and midsize companies, as well as their travel services division. Capital One acquired Brex and has its own travel group, while Citi is working with Navan, and JPMorgan Chase continues to invest across payments and travel. The recent expansion of Emburse’s relationships with BCD Travel, Direct Travel, Flight Centre Travel Group and World Travel provides another example of expense becoming more closely connected with the travel program.
There are different commercial motivations behind these moves. Banks can capture more corporate spend and create more visibility to strengthen their card and loyalty propositions. Expense companies gain access to more of the transaction and the data surrounding it. TMCs can provide customers with a more connected experience across booking, payment and expense. Bringing these capabilities together can remove friction, improve visibility across the travel program and provide a more complete picture of corporate spend. That information can also create greater influence in supplier negotiations.
At this point, fully bundled offerings that combine booking, payment and expense appear to have greater appeal for small and midsize travel programs. New M.O. has asked a substantial number of buyers how important it is for their travel solutions provider to offer an integrated solution. For now, many larger companies continue to procure these important components separately because they want to select the providers that best meet their individual requirements. That could change as the technology and bundled solutions develop.
The push to protect revenue and reduce payment costs
There is another question worth asking about the banks. Are they playing offense or defense? Commercial cards generate valuable revenue every time a corporate traveler pays an airline, hotel or other supplier. New payment models are challenging parts of that established system, giving banks good reason to grow their travel and expense businesses while protecting the economics they already enjoy.
Suppliers have their own motivation. IATA estimates that airlines spend more than 2% of their revenue accepting and managing payments. Carriers have spent years attacking distribution costs through direct connections and greater control over how their products are sold. Payment is another substantial cost they can influence, which explains the growing interest in direct settlement and other alternatives to traditional card payments.
This is where the conversation becomes more interesting for corporate buyers. Companies including Blockskye are promoting direct settlement as a way to remove cards from parts of the transaction. The argument is that lower payment costs can create savings, improve data and make expense reconciliation easier. Similar claims have accompanied many changes in travel distribution over the years, making it reasonable to ask where the financial benefit eventually lands. But are these solutions driven by supplier motivations and savings potential, or is there a real buyer demand?
Who gets the savings?
An airline that pays less to accept a payment saves money. The corporate customer may share in that value through better commercial terms or other benefits, but will this extend to SME clients? An intermediary may participate in the saving, while the supplier may retain more of the economics. Understanding that flow of money is important because a lower supplier cost does not inform the buyer on the true benefits and who receives them. For corporate travel, these direct payment options look like a solution looking for a problem.
There is also more attached to a corporate payment than the transaction fee. Corporate and virtual cards can provide rebates, data, controls, fraud protection, payment guarantees, reconciliation and working-capital benefits. Travel adds another layer of complexity because cancellations, refunds, disputed payments and itinerary changes are part of everyday life. Any new model has to be judged on how well it supports the whole travel program when everything works and change happens.
TMC choices and the test for corporate buyers
TMCs are also deciding how they participate in this convergence. Some are bringing more booking, payment and expense capabilities together, while others are working with specialist partners and giving customers more choice. The growing number of TMC relationships with Emburse and other solutions providers demonstrates how quickly that second model is developing. Both approaches leave buyers with decisions about the combination of technology, booking, payment, data and service they want supporting their programs.
There will be more acquisitions, more partnerships and new payment models, because there is too much money involved for the market to stand still. Banks want more corporate spend, expense companies want more transactions, suppliers want lower costs and TMCs want to remain central to the programs they manage. Those motivations are driving much of the convergence we are seeing today.
For corporate buyers, the answer will rarely be found in the transaction fee alone. The economics need to work alongside the service, visibility and support required to manage travel properly. Every new model therefore deserves the same basic test: Who benefits? Who gets the savings? Is it good for my travelers? And what does my travel program get in return?
Get parts 1 and 2 of The Great Convergence series here:
