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01/03/2022

How Frictionless Payments Can Transform the Hotel Guest Experience

Frictionless payments have the ability to support a customized and simplified hotel stay which benefits both the traveler and hotelier.
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hotel payment

The way we pay for goods and services has changed drastically over the past decade driven by the convenience of mobile, new digital wallet options, contactless payments, QR codes, new approaches to authentication and alternative payment methods. To compete in a digital world, it’s increasingly important to understand how travelers move through the different phases of this customer journey across multiple channels.

New technologies mean that there is growing potential to make each part of the traveler journey more seamless, including once they have arrived at their destination. The hotel stay marks a key phase in this journey, and one with great untapped potential. Frictionless payments have the ability to support a customized and simplified hotel stay which benefits both the traveler and hotelier.

On arrival at a hotel, check-in is traditionally done via a front desk agent, with self-service kiosk check-in an emerging option. But why not check-in using a mobile phone, perhaps during the taxi ride to the hotel? For all options, the traveler has the option to pre-authorize a payment method like a card, which lays the ground for one-click instant purchases.

The first thing that a traveler must do is check-in. This can be facilitated with express check-in whereby they check-in using mobile, perhaps during the taxi ride to the hotel. Alternatively, check-in can in-person with the hotel front desk or via a self-serve kiosk.

Once a payment method has been pre-authorized with the guest’s blessing, Merchant Initiated Transactions (MITs) work in the background so that the traveler doesn’t have to continuously provide authentication for every transaction. From a consumer’s perspective, this makes payments completely invisible, a la Uber taxi experience, and simplifies the overall payment experience.

Simplifying The Guest Experience With Invisible Payments

Secure invisible payments are an excellent form of payment, and we see the most uptake from repeat guests who have a level of trust with the hotel. This type of traveler is becoming more common as a result of COVID-19, due to the increase in domestic travelers returning to hotels closer to home.

When a traveler takes up the option to save their payment method with the hotel, either at check-in or booking, this method can then be used to pay for additional services throughout the stay with a single click, such as booking a spa treatment or evening meal at the hotel.

New technology approaches like tokenization mean hotels can store customer card details securely in an encrypted form within their own Property Management System, making secure invisible payments possible. New regulations in the EU like the Strong Customer Authentication (SCA) requirements of Payments Services Directive 2 (PSD 2) also have implications here. It’s important the hotelier, or their travel seller partner, obtains the correct authentication initially so proof of that authentication can also be stored for future use to enable these one-click payments in a compliant manner, certainly within the European Economic Area. These EU regulations have had their impact in security authentication protocols and standards in the card payment industry such as 3DS (a messaging protocol that enables consumers to authenticate themselves with their card issuer when making card-not-present (CNP) e-commerce payments).

Such frictionless in-app payment improves conversion for tailored offers for ancillary services delivered via mobile. This is a great option for those desiring self-service when purchasing and managing services, which due to COVID-19, has become significantly more important.

Importantly for hotels that welcome guests from across the world, this card on file approach also allows the guest’s preferred payment method to be used repeatedly when the hotel would otherwise find it difficult to offer the wide range of local payment methods necessary at its various points of sale.

The use of MIT functionality can also provide a great deal of risk-management for hotels. Once the traveler has authorized a payment method, a MIT can be used to mitigate the impact of no-shows and enables hoteliers to charge guests for one night even if they do not turn up.

We expect the increased use of initial authentication via CIT (Cardholder Initiated Transactions) along with full true card validation and authentication, to reduce the number of fraudulent transactions, either friendly fraud or when the traveler is successful in claiming a chargeback when the hotel has legitimately charged for a no show. The subsequent use of an MIT (Merchant Initiated Transaction) allows for the hotel to comply with those cardholders falling into PSD2 scope and general chargeback use cases, reducing the number of chargebacks for legitimate no show charges. 

Certain retailers verify cards at time of booking using a $0 authorization, which is a significant check. For various reasons, including complexity in travel distribution, hotels don’t always perform this verification. Introducing a CIT/MIT mitigates the fraud risks associated with not verifying the card at time of booking and also provides hoteliers with an opportunity to store the card information in a secure token - for subsequent use in e-Commerce and on property scenarios.

Establishing a Relationship with the Guest Earlier in Their Travel Journey and Building Out an Offering

If the hotel’s relationship with the traveler doesn’t actually begin until they arrive at the hotel, there is a much smaller window within which to sell ancillary services. Therefore the earlier in the stay the hotel can take a payment from the guest, the greater its ability to sell additional and personalised ancillary services in the same way that airlines do.

This enables hotels to build out their offering even more, and partner with airlines, insurance companies, taxi services and car hire companies. Each stage of the traveler journey can then be joined together, transforming the traveler’s experience.

Taking a step back, it is important to look at why this all matters. Frictionless payments both create a more convenient experience for the traveler and are essential to the industry’s merchandizing strategy.

By breaking down silos and considering the journey from beginning to end, payments can become a strategic differentiator, supporting a better experience for travelers and overcoming pain points like complexity, stress, fragmentation and a lack of choice when paying. Ultimately, by thinking not just of the guest during their stay but also of where the stay fits in their guest’s entire trip, hoteliers can drastically simplify the guest experience whilst maximizing opportunities to convert personalized offers made at different stages of the journey.