Reality check – local tourism is not ready for mobile payments
I recognize that as a technologist it’s easy for me to get caught up in the latest and greatest new technologies and apparent innovation sweeping across the industry.
But as a business person I also have to focus on what works and how customers want to pay for services online and offline.
Given that most tour and activity businesses are “local” and the majority of transactions are done face to face with customers, you would expect to see significant mobile payment adoption.
The reality however is quite different.
Mobile payments versus mobile processing
First of all, it’s important to define what I mean by mobile payments versus mobile processing. There is a lot of hype around mobile payment services.
PayPal has PayPal Here, Square offers a card swipe and merchant account, and Google is working on Google Wallet. There are more services everyday that pronounce themselves to be mobile payment solutions.
I break these services into two and very simple groups: ones that require the customer to carry their credit card and ones that do not.
PayPal, Google, and now Square are approaching the payments angle with the idea that customers don’t or won’t carry their credit cards any more and will, instead, pay using only their smartphones.
These services are what I consider true mobile payment services.
The other services, the mobile processing services, simply allow the business to swipe or charge a credit card on their smartphone rather than using a dedicated handheld terminal.
Mobile payments not yet global
Let’s face it, the likelihood that a traveler is going to go to a tour operator in a foreign country and have only their smartphone with them for payment purposes is pretty low.
In many regions where banking facilities are limited, even credit card payments are problematic. In my opinion the drive for mobile payment supremacy is, apart from the M-Pesa project in Africa, still largely only a US phenomenon and generally a one sided approach.
Google Wallet supports both contact-less and online payments but only works on select Android phones that support NFC.
Even now, traditional ecommerce merchant providers such as Authorize.net and Beanstream offer mobile processing applications that integrate their merchant accounts with a card swipe, therefore, directly competing with Square and providing a fully integrated payment solution.
All these solutions, however, are only offered to businesses in the US and/or Canada.
Credit cards rule the world
I had the opportunity to recently analyze the transaction data for over a million customers from our tour and activity reservation platform.
What I found interesting was the disparity in preferred payment methods versus actual customer payments.
Even though close to 75% of businesses support PayPal as a payment option, 80% of all customers paid for their bookings with a credit card. These are not all North American customers either, this includes customers from Europe, Asia, Australia, and Africa.
So why the discrepancy?
We looked a little further and found that the businesses that generated higher volumes of bookings tended to be businesses that had merchant credit card facilities.
This would seem to imply that larger more established businesses tend to make the investment in accepting credit cards rather than relying on a third party service like PayPal. But that’s not entirely true.
With solutions such as PayPal Payments Pro (PayPal’s merchant program) and Stripe, many small businesses are accepting direct credit card payments without the higher start-up costs of a true merchant account.
The size of the business wasn’t the defining factor but being able to accept credit card payments from customers seems to correlate with higher booking volumes.
Based on the booking data that I’ve analyzed, alternative payment solutions (for example cash or payment upon arrival) are most common in markets where credit card merchant facilities are more difficult to acquire.
In these markets, payments usually take the form of the customer handing over cash to the business or prepaying for their excursion with a wire transfer.
These markets, coincidentally, have much lower advanced booking rates and significantly lower conversion rates since payment is not guaranteed. The conversion rate for North American businesses were almost 2.5 times higher than those for businesses in Asia and South America, where alternative payment methods are the norm.
As a business owner in any destination looking to increase revenues, I would be looking at ways to accept and process credit card payments before worrying about accepting mobile wallets or NFC devices.
Small businesses in North America, Europe and Australia have access to merchant facilities and payment systems that are competitively priced and relatively easy to integrate.
Although the choices in other parts of the World are more limited, companies like YesPayments, AsiaPay and SBC Bank offer merchant solutions that are available to small businesses across Asia, a region that is traditionally cash reliant.
Hopefully, as Internet penetration increases and banking infrastructures grow, we will see more direct credit card processing capabilities in these and other emerging markets.
Don’t throw away your leather just yet
Visa and MasterCard are global brands, with a reputation that (for better or worse) provides consumers with some level of protection.
Although the mobile payments phenomenon will continue to grow with companies like Starbucks accepting NFC payments or one click purchasing in stores, the chances of these technologies making their way into the hands of a local tour guide in Vietnam are pretty low.
Before we get all caught up in the hoopla of mobile payments and the promise of technology making our wallets irrelevant, we all need to take a step back and look at the reality of the situation.
For most small tourism businesses, the first big step is to accept credit card payments because that, according to our data anyway, is where the money is!
NB: Wallet beach image via Shutterstrock.
Stephen Joyce is a contributing Node to Tnooz and has been working as a travel and tourism technology consultant since 1995. Stephen is the CEO of Rezgo.com, a cloud based software as a service reservation and booking platform for tour and activity providers.
Stephen is the Board Chair of the OpenTravel Alliance.
Stephen is a graduate of Capilano University, is a certified commercial pilot, and holds a certificate in IT Management. His personal blog is the Travel & Tourism Technology Trends.