It's time for Travel to ride the instalment wave

Travel may have been priced out of the BNPL boom to date, but its opportunity to ride the instalment wave has finally arrived...


Martin Magnone

Co-Founder & CEO

It would be an understatement to say that the past few years have been tough for travel. After a lengthy period of restrictions, the industry had finally gotten back on track and was making a strong post-pandemic recovery. However, its takeoff has been stalled by rapid inflation and a cost-of-living crisis that’s been eating away at every would-be holidaymaker's wallet.

The upshot, of course, is that travellers are now delaying or cancelling their travel plans altogether as they face the reality of rising costs and tightening household budgets.

So what can travel merchants do to tap into pent-up demand and beat the bookings slump? Flexible instalments may provide the answer.

People love paying in instalments

In recent years, paying in instalments at the point of sale has exploded in popularity, and it has been driving huge revenue growth across retail and beyond. To put it into perspective, 17m UK consumers have now used 'buy now, pay later' instalments. What's more, a staggering 37% of 25- to 35-year olds make use of BNPL two or more times each month.

Setting aside the important issues of regulation and financial wellbeing for now, people evidently love the flexibility, transparency and convenience of spreading the cost of purchases into equal monthly payments.

The simple fact is that the more traditional forms of credit haven't kept pace with evolving customer demands. The confusing costs, hidden fees and ballooning balances of revolving credit cards, for example, are driving people away in droves – and towards new forms of finance.

Merchants that have embraced this trend and started offering instalments at the point of sale have seen their sales rocket. In fact, more than half of UK merchants using POS instalments report an increase in basket conversion, while 46% experience an increase in average order value.

Great, sign me up, says the enthusiastic Travel merchant. But wait, there's a problem.

Travel has been priced out of the party

It's no secret that the Travel industry runs on razor tight margins. Online travel agents in the UK, for example, operate with an average profit margin of 7.3%. Given that merchant fees for 'buy now, pay later' range from 2-8% of total order value, adding BNPL instalments into the mix is simply a step too far for most.

As the chart from McKinsey below shows, Travel has been well and truly priced out of the party: merchants in the travel category, from airlines to agents, are far less willing to subsidise point of sale offers than, say, luxury and fashion retail brands.

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Low margins, coupled with the high fees charged by BNPL providers, have combined to lock travel merchants out of the point of sale instalment boom. But the good news is travel companies needn't miss out any longer.

The emergence of new, responsible and, importantly, sustainable instalment credit models means travel merchants can offer their customers exactly what they want – without eating into their own margins.

Enter Travel's opportunity to ride the instalment wave

A new innovation, the instalment credit card, offers Travel the opportunity to unlock the benefits of instalment finance and create added value in the process. How? By combining the best of the old and new worlds of credit.

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This new proposition is designed to provide Travel companies with the ability to offer customers instalments in a transparent and responsible manner, but unlike BNPL Travel merchants don't have to pay hefty fees for the privilege.

Customers get exactly what they want – the ability to spread travel costs over time with no hidden catches or surprises - and Travel companies can offer instalments without compromising their margins. The result? More bookings, more often, with greater profits on top.

What's more, by offering a travel credit card under their own brand, merchants can capture benefits beyond a boost in bookings. A branded instalment credit card presents an opportunity to become their customers' go-to provider of flexible travel finance. And rather than being limited to the booking stage of a customer's trip, it enables travel merchants to deepen relationships and be part of the travel experience every step of the way.

To top it all off, travel spend provides a deeper understanding of their customers' travel habits and preferences via transaction data, as well as additional revenue streams from interest interest-earning travel balances.

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That's not to suggest that all the benefits fall to merchants, of course. Their customers stand to benefit from an experience that beats both traditional 'revolving' credit cards and BNPL in terms of flexibility, transparency and control.

But more on that in the next article in this series, which will take a deeper look at how merchants can put themselves at the centre of their customers' trips with an instalment credit card offering built for engagement.

Travel is set for takeoff

The travel industry's post-pandemic recovery has been a story of ups and downs so far: rapid inflation and cost-of-living crises have led to bookings slumps, and the solution for depressed spending in other sectors has been, so far, out of reach for many.

But while travel merchants may have been priced out of the 'pay later' boom, they don't have to miss out any longer – travel's opportunity to ride the instalment wave has arrived. With the emergence of new responsible and sustainable instalment credit cards, travel companies can now offer their customers flexible payments without compromising their own margins - all while laying the foundations for deeper and more valuable customer relationships.

Want to learn more about how an instalment credit card can benefit your Travel business? Get in touch here.

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