Travel & Tourism Industry Pain Points and How Blockchain is Helping
The global travel industry is currently worth over $7 trillion. It is full of many actors -- airlines, hotels, car renting companies, cabs, tour companie, sand travel brokers, which is a good thing. Today, 83% are now booking their holidays online either themselves or via online travel agents. It is no longer necessary to flick through brochures calling people to help decide where to book.
But the result of all this is that the customer now has an "overlapping web of touch-points" with huge variation across different customers and their holiday preferences. Additionally, the many challenges as highlighted in the text below compromises on customer experience whenever they are seeking services such as flight, cab, hotel and accommodation, and tour services.
Double marginalization challenges
Double marginalization problems occur because of the existence of many intermediaries. Intermediaries, who do a good job in facilitating bookings, unfortunately, charge a lot of money. For example, platforms such as MakeMyTrip shares up to 25% of the total booking value of your travel with the travel agent while still making a profit themselves. It means only less than 70% of the amount paid goes to the hotel.
Payment pain pints, scams, and frauds
Settlement and payment problems exist whether you operate on a merchant model or an agent model. In the former, the intermediary takes the payment from a traveler or customer and settles with the various suppliers on a regular interval. Hence suppliers such as small hotels may experience low cash flow and high cost of verification. In the agent model, the booking data is merely transferred to the supplier and the consumer pays when they arrive at the hotel or when they pick the car, take the fligh, tetc. A problem constantly experienced is when a customer needs to alter or cancel the service because the hotel will still need to charge the distribution fee for the intermediary or the customer need to still go through the intermediary via whom they are booked.
Insecure B2B cross-border payments also present additional risks for travel industry stakeholders since the ability to exchange money with global suppliers and partners is critical to the survival of the business. Some of the problems to expect as a result of fragmented payment networks include fluctuating FX rates, geopolitical tensions, long settlement times, heavy transaction fees and fraud risks. Travel agents also have to wait for long before payment is released to them when funds are held in a trust account until the agent has delivered the services to full.
Without mentioning extra charges as a result of costly middlemen networks, for instance, costing customers fees 25% higher, when it comes to making payments in the travel industry, sometimes clients can never be sure about the final charges with additional charges coming later after the purchase of the initial product. Card surcharges are still existent although they are reducing. Further, the card-not-present (CNP) fraudulent online ticket purchases cost the airline industry more than $1.3 billion according to Europol. For instance, 200 individuals were arrested in 2016 in an international operation relating to a fraudulent purchase that involved 43 countries, 75 airline, sand 8 online travel agencies.
Scams and fraudulent transactions also cost the travel industry billions of dollars -- more than $16 Billion as early as 2015. For instance, the GlobalBankingandFinance.com recognizes that there are many ways fraudsters are using to survive the travel industry: the "fake hotel" for instance through websites such as Alps.stay.com, has led to holiday-makers losing tens of thousands of Euros to fraudsters. They go to the extent of listing fake properties on OTA’s website and using fake credit cards to make fake bookings. An OTA receives a charge-back when they go to pay the fake hotel but the fraudster will have already withdrawn the money.
Other forms of scams and fraud are in the form of inflated room prices and supplier collusion where the fraudster colludes with hotel to OTAs and they raise the cost of room on the OTAs website; Dodgy tickets are also common where a conman buys last-minute tickets to tourist destinations and then selling
the tickets rapidly on social media at discounted prices. Knowing your supplier, implementing internal controls at OTAs, using payment methods that offer protection mechanisms, and introducing fraud pattern reporting and analysis are methods through which one can reduce fraud in travel. Another big way is using blockchain technology.
Finally, in some cases, transparency of what is charged by car hires is lacking since what finally appears on your credit card statement is different from the price quoted at booking. Additionally, travel insurance policies aren't as fair with many being determined on the basis of age only.
Booking challenges to customer
Ideally, a travel operator, tour operator, hotel operator, or an airline would today need a system that offers B2C online booking portal, a booking engine that integrates with multiple suppliers and completes automation of the process so a customer can find and book services within minutes. The system may also incorporate or integrate with payment companies to allow customers to pay through multiple payment methods, others probably offer rewards, data managemen, tand other services for customers.
First of all, most of these platforms are based on centralized databases and platforms with several points of failure. The company running the database has control over all customer data. Researchers at Berlin-based Security Research Labs have previously found that most of major travel booking systems lack proper ways to authenticate air travelers and make it easy to hack the shortcode used on many boarding passes to alter flight details or steal sensitive personal data.
In such a system, a traveler’s name, travel dates, itinerary, ticket details, phone and email contacts, travel agent, credit card numbers, seat number and baggage information are all secured with a six-digit code on a Passenger Name Records (PNR) system that stores the information with links to the data.
The lack of authentication factor on travel agencies including the three major global distribution systems (GDS) - Amadeus, Sabr, eand Travelport -- has caused many breaches. That's without including other data security hazards including the loss or theft of equipment, spyware on PCs in hotels and airports, data theft through WiFi and border or customs officials, (particularly in countries prone to corruption or with illiberal authorities).
Finally, cybercriminals and identity thieves, using these and other routes, may be able to access sensitive company data and sometimes credit card information or your loyalty point, setc.
Problems with refunds
Depending on where you are flying to or from, you are entitled to a refund if the flight is delayed for more than three hours. Those asking for refunds experience delays and sometimes do not get any money at all.
Currency exchanges problems/challenges
Sometimes, for travels where a traveler is connecting flight over a country to another country, they can pay more for the travel tickets because the currency in which the transaction is settled depends on the country residence of the airline and there will be subsidies for various foreign currency exchanges. Other additional costs for the traveler include those related to foreign exchange charges when paying for an insurance cover or when taking a car rent.
Loyalty programs are largely broken
Although the travel and tourism industry is full of loyalty programs, 77 percent of these programs fail within the first two years. The fact that customers are switching brands more frequently means that loyalty programs are broken. Fraudsters also sometimes steal valuable points and sometimes redeem them illegally.
For instance, security experts found in 2015, plenty of malicious sellers on the black market selling hijacked Hilton points for a fraction of their value. Other loyalty programs compromised include those run by American, United, and Lufthansa airlines.
Many online booking tools
The presence of many online booking tools confuses managers who are unable to correctly evaluate which is the right fit for the travelers and organization.
Lost luggage challenges
Lost luggage costs the travel industry and users billions of dollars each year. For instance, it cost airlines around the world over $2.1 billion in 2016. When a bag is delayed and somehow gets to the next flight, it could take you days to recover them or never if it lands in wrong hands. It is very inconveniencing if you were intending to use the bag. Some airlines will reimburse unexpected expenses as a result of the inconvenience, but that's a loss to them. An airline can also pay a maximum of $3,500 per passenger on U.S. domestic flights for lost bags if you had paid a checked baggage fee and you file a claim for damages with details. It's still a loss to them.
Travel agencies also face workflow problems, which are related to the management of information, documents and activities, which generally flow between three business areas: management; customer-facing and back office. Without proper information management systems, there may be delays and inconveniences in the processes such as back-office activities including billing and settlement plan payments, invoicing, procurement, invoices, credit note, sand vouchers or managerial tasks such as reporting on performance and outcomes, budgeting, customer issue resolution, and accountability. Also, problems and additional costs may spill to customer-facing activities such as creating travel plans; Travel Agency workflow areas are back office; customer-facing & management; bookings; itineraries; invoices; credit notes and vouchers.
Problems with workflows may result in losses when services are sold with outdated prices or available information, loses when price margins can't be easily checked, loses when sales opportunities cannot be shared across the company to facilitate immediate and necessary decision-making, loses when customers aren't able to get real-time tour/travel information, and loses when personalized customer/client information is not readily available. It may also result to payment difficulties to customers when they are unable to reconcile and manage multiple payment types. Deadlines become hard to meet when checking of travel services pricing is done manually. These delays make availing of important information to customers impossible and also in turn cause delays in management decision making because important information cannot be shared or derived as needful.
In addition to increasing possibility for fraud and scams, problems in workflow cause flight delays and missed flights.
Business is tough for beginners
Booking.com, Expedia, TripAdvisor, Kayak and Skyscanne, rand other large companies maintain a huge brand presence and continue to invest in it and reinforce their brands. Most of the 53% of all bookings that come from online channels come through these brands. While most customers are looking for personalized services, is it possible for small companies to win a share of the market using emerging technology or some form of differentiation?
Fake user reviews online and social media
Online reviews are so important for travel industry players that a positive review can earn you an extra customer, but a negative one can spell doom for your business. If you are fond of reviews sites, they are full of reviews but most are hard to verify their genuineness and posted by people who never were in the locations they claim to have been. This means they can be misleading. At the same time, some people post negative reviews about other services with an attempt to harm their competition.
Finally, there is usually lengthy check-out times and queues in airports related to these checkout processes, without mentioning crimes such as identity theft.
Blockchain can work to complement solutions such as predictive analytics and intuitive booking tools. They can make smart forecasts regarding popular trips and style of travel to secure the best rates.
How blockchain--based Autonomous Smart Travel Ecosystem will tackle the issues
There are several blockchain-based travel and tour startups looking at these problems as something that can be solved. We have looked at a few on the category of cryptocurrencies in tour and travel industry and ICOs in the travel and tour industry.
In addition to these solutions, The Autonomous Smart Travel Ecosystem is a blockchain-based payment and settlement platform designed for stakeholders in the travel industry including small and large airlines, hotels, tour, and providers. It is run by a company called Further Network. On the platform, any of these stakeholders can create their own assets and modifiable services and publish them using their own smart contracts. They can also get real-time payment through the blockchain and cryptocurrencies.
Further Network intends to start tokenizing of assets, then identity sharing and achieve a fully integrated set of systems on the blockchain. Of course, Further Network cannot alone solve all the issues in the travel and tourism industry, and so blockchain. However, Further Network and the many startups in the two lists above cryptocurrencies in tour and travel industry and ICOs in travel and tour industry plus many other examples that we haven't talked about, of course, offer great examples of how these challenges can be overturned.
Solving hotel reservation and ticket booking problems
Currently, legacy systems comprise of different PassengerService Systems (PSS) where airlines create and sell their inventory with almost all systems being derivations of the ancient paper-based systems. From the business perspective, current providers experience IATA or Airline Clearing House(ACH) dependency, high commissions, and transaction fees upon receiving and sending, barriers to expanding sales channel, trust and traceability issues, currency risks, difficulties with keeping money in their own country, and long payment intervals extending to between 15 to 45 days.
From an agency's perspective, there is a high capital barrier because multiple providers have multiple deposit accounts. There is also difficulties in provider settlement, high cost of a letter of guarantee, barriers to expanding provider channel and product option, and the high cost of a payment transaction. There is also inefficient reconciliation processes where an agency is working with multiple providers. While it is easy to do reconciliation when working with a single provider, current systems require mutual control of records in the systems of both parties involved in the realized sale.
Hence reconciliation is possible within certain periods (currently a minimum of 15 days to an average of one month) and may also need third parties to do a money transfer. Even when an agency is selling on a single system, it may need to do it through a third party.
The system is also much more complex in the real world because one agency will usually work with more than one provider and the providers will usually work with more than one agency. Current systems are limited in terms of time, costs and extent when multi settlement (where the agencies and providers and the many people they work with need to offset transactions between and within themselves). Monetary systems also require multi-system and multi-step settlements. In order to do reconciliation through IATA say on an average of once per month, high commissions need to be paid and guarantee deposit money kept aside.
Agencies are required to lock a certain amount of money since airlines and providers do not do settlement instantly. It means a large amount of their money remains idle for some time without being utilized. For instance, IATA requires 360,000 USD minimum guarantee letter for travel agencies and this increases according to the transaction, volume, or risk degree. Other providers may require a minimum-security deposit ranging from 3,000 USD to 10,000 USD or more to open a new agency account even if the agency does not immediately sell this amount of products. It is easy to see that an agency may tie a huge amount of money when working with several providers.
Besides, the process can be more uncertain and require third-party involvement. Currently, the e-ticketing platform provides non-configurable and non-actionable data, for instance without rules of returning or changing dates by client or personalization to client needs. Further, tickets offered by most airlines and reservation opportunities are not changeable with equivalents for the same or different provider/operator. Transferring a ticket or reservation to a different person is unheard of, too. It is also still hard to track ticket ownership on most legacy platforms.
Additionally, although there are identifiers such as passport number or a cellphone number that can identify a customer -- for instance if you needed to know whether within shortest time possible it is the same customer who booked several trips or different locations-- but these cannot assure of the uniqueness of a customer since these are still open to error and/or can be changed without blockchain. It is also possible to falsify data on the platform.
Further Network platform aims at using blockchain to help reduce the cost of payments by its users, help agencies reduce the amount of money they require to keep or block as deposits with providers on safe accounts and facilitate instant cross-border payments between parties utilizing the platform. They also aim at customizing travel asset, facilitate exchanging of travel assets, decentralize the process of settlement and remove mediators, and help the platform to achieve interoperability.
SevenGates, which is IBM partner, is working with a Turkey-based blockchain startup Further Network, to build a blockchain-based payment and settlement platform for a Turkey-based travel agency Turkey Vista which focuses on corporate sales and is a representative of Carlson Wagonlit Travel. Their whitepaper details the Autonomous Smart Travel Ecosystem, which uses Smart Travel Record (STR) technology and STR token to solve the problems experienced by the electronic reservation and payment systems being used in e-ticketing.
On the legacy platform, which is available to only a small proportion of participants, agencies are still struggling to make payments and settlements and not all airlines and hotel providers are available on the system. Further problems or difficulties are experienced when a traveler is going to a destination only accessible locally. Other issues on the existing legacy system include lack of online data, lack of trust between parties, lack of payment methods and/or additional costs. There are also unaddressed issues of identity matching and loyalty which are some of the biggest issues yet to be solved.
The Smart Travel Record (STR) allows travelers to tokenize their tickets on the Autonomous Smart Travel Ecosystem, which they can sell. Customers can also customize their flight tickets or even change and sell them on the platform. It can also be used to tokenize hotel booking or reservations. The STR smart token has data relating to flights, hotels, reservations, and/or any other travel product. Through STR token, users such as cruise ship operators, hotels, airlines, and car rental companies can exchange assets with each other.
Using this platform that utilizes p2p technology, travel agencies will be able to reclaim control of their cash. According to Kadir Özgür Oğuz- Co-Founder & CEO of Further Network, the platform uses Smart Contracts to perform real-time transactions while ensuring a low number of disputes. He said they are aiming to provide Airlines, Agencies, Hotels, and travel service providers who can solve their billing, settlement, and payment issues while removing 3rd parties and completing the billing, settlement and payment in real time on the Autonomous Smart Travel Ecosystem.
The platform will remove delays and the need for agencies to pay security deposits as is required with the current system. It will also save a lot of costs in the settlements and transactions as a result of the removal of third parties and airlines can increase their profits by up to 40%.
Future Network will launch their passenger wallet with Biometric ID in Q1 of 2019, and in Q2 will be launching their Peer-to-Peer (P2P) Travel Product Distribution.
IBM and Deutsche Bahn
IBM is partnering with DB Systel, the IT service Provider of DB, to develop a blockchain platform on which providers in public mobility can network to better facilitate their business processes. How? Their platform will offer a full-service experience to customers from booking airlines tickets to rail or taxi in one go.
The platform will make it easier to settle payments between providers in lesser time, more accurately and transparently. For instance, while its currency takes 45 working days to settle payments in the global tourism industry, the platform will reduce that duration to around 45 minutes.