BNPL in travel industry

BNPL use in the travel industry

As the public returns to booking vacations as COVID-19 restrictions ease, an ever-increasing number of payment options are emerging to assist the industry’s regrowth, with travel companies steadily expanding the range of financial services offered to customers.

According to an ECOMMPAY survey of travel and aviation representatives made in 2022, the popularity of Buy Now, Pay Later is growing, with 94% of respondents noticing a rise in the popularity of this payment method. In addition, 51% of business leaders across various industries expect that stricter regulation of BNPL will only increase the popularity of this payment method.

The Buy Now, Pay Later model offers many advantages to travel companies, and many have already jumped on this popular bandwagon. However, the payment method isn’t entirely without drawbacks, and it’s essential to weigh up the pros and cons before implementing BNPL into your payment workflow.

What are the advantages of BNPL in the travel industry?

Here is a short list of the benefits of Buy Now, Pay Later for the travel industry:

One of the major benefits of BNPL is the financial protection it offers to merchants, as they receive payment immediately, leaving the BNPL scheme with the task of receiving instalments from clients. Even if the customer pays back their loan over a long period, the merchant will not be affected.
When a client pays through instalments, it can often prove easier to upsell to them than it would otherwise. For example, they might upgrade from a 4 to a 5-star hotel, go on holiday for longer, or be more willing to consider add-ons like guided tours. This means that merchants will often receive more money for an average purchase made with BNPL than other payment methods.
Another benefit of BNPL loans is that they provide clients with a greater variety of payment options. By providing customers with greater flexibility and choice, they are more likely to use your services. In fact, more than a third of businesses across various industries (36%) who offer Buy Now, Pay Later as a payment option saw a 41-50% increase in use during the pandemic, highlighting the growing consumer preference for this payment method.

What are the disadvantages of BNPL in the travel industry?

As promising as Buy Now, Pay Later schemes seem, there are a few potential drawbacks. Here are some of the things to consider before implementing this payment method:?

If you're considering offering this type of payment method, you'll need to factor in the time and money it will cost to integrate the service into your website. With no guarantee that your clients will even use the service, you can't know for sure whether or not BNPL is worth the implementation costs.
Certain "high-risk" customers may overspend when they use BNPL to pay for travel. While the BNPL service provider will be responsible for footing the bill, your company may still end up being associated with debt problems and high-risk clients.
As BNPL grows in popularity, stories continue to emerge about people getting into debt, creating a somewhat negative public opinion. The reality is that although personal responsibility has to enter the equation when a customer uses a BNPL scheme, providers are also responsible and have the power to inform and educate clients about the pros of BNPL and also the risks involved.

Questions still exist surrounding ATOL protection and refunds

In the retail sector, Buy Now, Pay Later has received a degree of negative press from frustrated shoppers, with some companies refusing to issue refunds and forcing consumers to go directly to the BNPL provider for reimbursement. For travel operators, ATOL adds an additional component to the refund equation that needs careful consideration. ATOL protection allows consumers to retrieve funds in the event of a tour operator failure. When a BNPL transaction is made, the tour operator receives the funds straight away, with the consumer paying instalments to the BNPL provider. ?Whether and how this will be reflected in the ATOL scheme remains to be seen.

Missed payments and defaults?

In a scenario where the travel company is operating normally, but a consumer has failed to pay their instalments or defaults on a loan, then the BNPL provider would seek to recoup the lost money.?

Final thoughts

With its rapid growth across many industries, and big players such as Apple and Paypal adding instalment-based options to their payment infrastructures, it seems inevitable that BNPL will eventually fully infiltrate the travel market. That means it's only a matter of time before BNPL becomes a must-have payment method for travel checkout pages.

However, as government regulation surrounding Buy Now, Pay Later tightens, choosing a reputable provider will become vitally important. Keeping a watchful eye on the retail sector may help to indicate where the legislation is heading, as well as gauging the level of negative opinion from consumers and the media.