Why OTAs should not integrate with Stripe?
It always comes down to a build vs buy decision
Even the largest online travel agencies find themselves relying on payment providers to handle some of their payment operations. That’s because traditionally, the role of financial institutions in the process of payments was crucial, as the only entities with the expertise and the scale to make it possible.
However, that is changing. The rapid acceleration of technological changes and the appearance of many new startups in the ecosystem has made it way easier to internalize products that used to belong to banks. For smaller companies, though, so called payment gateways such as Stripe serve as the middle ground between having financial technology built in-house, and partnering with a third party to accept payments.
As I touched on previously, travel agencies are counterintuitively not in the business of connecting customers with airlines, but in the business of providing a better customer experience than going to their suppliers’ websites. Being able to accept a wider range of payment methods is of course one key way to do just that.
And as travel agencies scale and cater to more customers, it becomes viable to transition away from external providers with fees per user, and instead investing in developing in-house the capabilities to accept payments.
In other words, regardless of the size of your OTA, payments is one of your core competencies.
Travel agencies operate on such low margins, that payments become a major means of profit. It essentially comes to these two things:
Payment acceptance rate: Relying on external providers means assuming their generic fraud risk assessment as valid, even though they could be better off conducting their own data analysis. In doing so, you would reduce the number of legitimate customers experiencing friction at the point of sale, which is an important source of missed revenue for many travel agencies.
Fees: A small team of developers may account for a small percentage of the overall company revenue, and the right team of developers may be responsible for multiplying that revenue by simply building capabilities that must be left to expensive providers otherwise. For example, voiding a customer’s purchase when airlines suddenly increase their prices, rather than incurring fees when having to refund the money.
I think it’s apt to believe that integrating with a platform is like a marrying another company. It’s definitely a social contract of sorts, where we customers depend on the platform to stay true to their word, and to deliver. It may be tempting to go for a full stack payment provider because it’s simpler, but as your OTA grow, the money you’re leaving on the table and the cost of transitioning away are simply not worth it.