Just as more people began to feel safe enough to travel again and hotel owners were ready to welcome guests back and make up for lost business due to the pandemic, the worst inflation in more than 40 years hit American consumers and drove price hikes worldwide. So, while pent-up demand for travel and hotel stays is real, the obstacle of higher prices is a reality too.
Creative thinking from the hospitality sector can help people overcome the price tag obstacle while enabling businesses like hotels to accommodate budget-conscious travelers. With flexible payment options like “buy now, pay later” (BNPL), vacationers can book a vacation stay today and pay it off in installments over time. . It’s analogous to the “layaway” concept, where consumers pay for big-ticket items over time and collect their purchase later when it’s paid off, except BNPL offers more immediate gratification.
Flexible Payment Options in the Hospitality Sector
Most hotels haven’t adopted flexible payment options yet. Like many organizations, they tend to follow the customers’ lead, waiting to invest in technology to support emerging consumer preferences and buying habits until they’re sure that investment will pay off. But the problem with that strategy is that companies that follow it lose out on the first-mover advantage, foregoing a chance to get out in front of emerging preferences, drive more revenue and increase guest loyalty.
Starbucks is an instructive example of how a business can gain an early advantage by embracing digital-first processes, including new payment options. When the company first rolled out its app to enable mobile orders and payments, it wasn’t a routine way to pay for most Starbucks customers. Just a few years later, at the onset of the pandemic, about 80% of customers were using the app to order and pay, which gave the coffee chain a leg up on competitors when consumers began prioritizing low-contact customer experiences in 2020.
Thanks to companies like Starbucks and other digital-forward organizations, people expect easy, frictionless digital processes and payment choices, making options like BNPL increasingly popular. According to an article in Reuters, BNPL is one of the fastest-growing segments in consumer finance, reaching $120 billion last year after representing $33 billion in 2019.
Omnichannel Support Removes Friction
It’s always a good idea to remove obstacles to a purchase, making it easy for guests to pay for rooms and extras. A frictionless purchase experience will net more sales, which is why hotels should consider omnichannel payment support that simplifies the customer journey, including for customers who want to pay via the BNPL model.
As the Starbucks example illustrates, customers want payment choices. When companies offer them, even before significant demand is evident, they can build greater loyalty among the customer base. Hotels that offer omnichannel payment support can remove the friction not only from making a purchase but also enable easy booking and payment across multiple devices.
The ultimate goal for all types of businesses, including in the hospitality sector, should be to make payments as seamless and invisible to the consumer as possible. That’s why automakers are rolling out functions like in-vehicle touchscreen fuel payment options, enabling drivers to buy gas without using a physical card by activating mobile wallet features for purchases.
In the hotel business, omnichannel support and full functionality across platforms could allow guests to start a reservation on a laptop and pay with a mobile wallet using a smartphone. With a goal of removing friction from processes like booking rooms and paying for lodgings and incidentals, omnichannel support meets customers where they are. That includes the growing number of consumers who are making purchases via a BNPL arrangement.
How BNPL Functions Within the Financial System
While BNPL’s position may change, the function typically operates outside the traditional payment ecosystem currently, including the credit system. Most BNPL providers don’t do a hard credit check before authorizing a purchase, so it usually doesn’t affect the buyer’s credit score. If the buyer pays on time and the credit issuer reports this to the credit bureaus, it can help the buyer build credit, whereas failing to make payments on time can negatively affect the credit score, as with any other type of payment arrangement.
Usually, BNPL purchases are broken down into four installments that are made over a few weeks. Adopting BNPL payment options opens new pools of potential customers for high-end hotels. Guests who may not have the cash on hand for a luxury hotel stay to celebrate a special occasion, explore a new city, or visit a scenic resort may be willing to make that commitment if they can pay in installments.
From the merchant’s perspective, a BNPL transaction is treated as an up-front cash payment, less whatever fee the BNPL provider charges. So, if a hotel guest books a stay valued at $1,000 in a BNPL transaction, the hotel receives the $1,000 minus any transaction fee. BNPL could increase the average ticket spend by 30-50% and approximately 60% of consumers surveyed have made a BNPL purchase, so acceptance is growing among potential guests.
Operational and Technical Challenges with Flexible Payment Options
It’s important for hotel executives who are considering offering guests flexible payment options to understand the full scope of operational and technical challenges that need to be addressed before program rollout. Adopting flexible payment options like BNPL amounts to implementing a new payment tender type, which can be complex.
Many guests book a hotel stay either online through a third party or via an in-house central reservation system at the hotel. Hotels can work with a flexible payments partner to enable options like BNPL and other tender types (crypto, for example), but acceptance may be limited if guests go through third parties that don’t offer flexible options to book a stay.
The technical issues are relatively easy to overcome if the hotel partners with the right flexible payments vendor, and third party bookers eventually follow consumer trends. The operational issues will be unique to the hotel and may include the need to develop new policies and provide training to staff so they can handle new payment options seamlessly. For example, when guests pay with a credit card, hotel staff typically swipe the card and hold it open until checkout as a way to pay for any incidentals charged to the room.
With a flexible payment option like BNPL, the room charge would typically be paid up front, so the hotel would need to develop processes around handling additional charges like room service. All-inclusive stays (such as those offered by some resorts and cruise lines) would be one way to handle this scenario, but that may not work for every hotel. As an alternative, the hotel management could require a credit card swipe at check-in to ensure that they have a way to receive payment for additional charges.
What to Look for in a Flexible Payments Vendor
As hotels look for ways to increase revenue in an uncertain economy where many people are struggling with inflationary pressures, flexible payment options and omnichannel payment processing capabilities can serve as a differentiator in the marketplace. It’s a way to offer more choices on payments to guests and take the friction out of the booking and payment process. When hotels offer options like BNPL, flexible payment options can expand the customer base, enabling people who might not otherwise be able to afford it to book a stay and pay it off on their own terms.
That said, it’s important to understand the technical aspects involved in deploying new payment tender types, any fees incurred by the hotel, and the training and process changes new payment methods require. One of the most critical decisions for the hotel will be payment vendor selection. Hotel executives who are interested in exploring flexible payments should analyze potential vendors’ experience in the hospitality sector so they can be assured their partner understands the industry’s challenges.
Hotel executives should also consider the level of support vendors offer and the payment platform’s integration capabilities, such as point-of-sale software integration. It’s also a good idea to seek out vendor companies with a track record of innovation. Consumer expectations on payments are being reset constantly as new transaction technologies emerge, and it is crucial to partner with a vendor that can help the hotel stay up to date as payment options evolve.
Creating a seamless customer experience is the best way to attract guests and generate repeat business. Consumer demand for flexible payments is growing, and the hotels that adapt first will have an advantage. After all, it used to be customary for guests to pay in cash for a hotel stay, and payments will continue to evolve. Hotels that keep pace with options like BNPL can help guests fight inflation while building a new generation of loyal customers — and increasing revenue at the same time.