Will cryptocurrency become accepted for travel payments?

The wild ride of Bitcoin has dominated
headlines in recent weeks. The cryptocurrency’s value stands around $50,000 for
one Bitcoin this week – compared to about $10,000 a year ago and around $400
five years ago. Bitcoin is just one of thousands of cryptocurrencies in
existence – and many of those are also surging – but it has by far the highest
value.

Since Bitcoin first appeared in 2009
as the original decentralized digital currency, i.e., not controlled by banks or
a government, a handful of travel companies have come to accept it as a form of
payment.

One of the first was online travel
agency CheapAir, which began accepting Bitcoin in 2013. Originally the company
used a third-party processor to convert the Bitcoins into dollars which could
then be paid to airlines and hotels – since virtually all suppliers still
require payment in fiat currency. Eventually, the OTA built its own processing
technology for Bitcoin to manage the exchange itself. 

CheapAir co-founder and CEO Jeff Klee says that the need
to exchange the cryptocurrency is one of the roadblocks to widespread adoption
in the travel industry.

“It would be much easier for everyone
if the suppliers would accept crypto. It’s a bit of an ordeal when the supplier
doesn’t, so we have to exchange into dollars and pay the supplier separately,”
he says.

“That’s what makes it unattractive
to a lot of travel intermediaries. There’s a lot of infrastructure you need,
training you need for your frontline agents to support it when customers call.
We decided to commit to it, so we built that infrastructure and it’s a big part
of our training.”

Even with that commitment, Klee says cryptocurrency
still accounts for just “single digit” percentages of CheapAir’s sales. But there
have been positive aspects.

“We really value and appreciate our Bitcoin
customers. They tend to be very loyal, and they tend to buy more expensive
products … first-class tickets and luxury hotel accommodations,” he says.

Spain-based OTA Destinia has been
accepting Bitcoin since 2014. Managing director Ricardo
Fernández says that while it only accounts for about 2% of the platform’s global
sales, offering payment in Bitcoin has enabled the site to attract a niche of
customers around the world that own – and want to spend – cryptocurrency.

But, he says, that relationship
between holding versus spending cryptocurrency is changing, something echoed by
Klee.

“Until 2020 the relation between price
of Bitcoin and number of bookings was direct – the higher price, the higher
bookings. In 2020 when Bitcoin started to go crazy, the relation started to be
inverse. So if price is growing, the number of bookings is decreasing because people
are now looking at it as an investment,” Fernández says.

That hasn’t been the case for Travala, an Australia-based OTA founded in 2017 that offers more than two million
accommodations around the world and in two weeks will add tours and activities.
The site’s primary cryptocurrency is Bitcoin, followed by its native AVA token
and 25 other cryptocurrency options. 

Co-founder and CEO Juan Otero says Travala is processing about one million dollars’ worth of bookings each month and about 70% of that
is paid in cryptocurrency, for which the company has built payment
technology to manage the exchange and payment in fiat to suppliers.

He says broader adoption of cryptocurrency
is inevitable.

“We are just at the beginning of what
will be a true financial revolution where people will move away from fiat and
into cryptocurrencies,” Otero says.

“When you pay with crypto, it’s near
to instant, it’s near to free, it’s privacy preserving – everything that
blockchain technology offers you is something you have when you use
cryptocurrency to pay. Plus no added credit card fees, or waiting for a payment
to be processed or denied. All the issues and costs with traditional credit
card payments are removed when you pay with cryptocurrency.”

Risks and rewards

That doesn’t mean cryptocurrency is without
risk, cautions Thomas Helldorff, vice president for airlines and travel at Worldpay
from FIS

“If you accept a Bitcoin as a form of
payment, then you have to live with the risk that by the time you accept it,
then you eventually convert it to your currency, that Bitcoin’s value may
fluctuate up or down and that may significantly erode your margin,” Helldorff
says.

Travel companies with a very thin margin are not in the game of speculating with currencies.

Thomas Helldorff – Worldpay from FIS

“Travel companies with a very thin
margin are not in the game of speculating with currencies.”

Instead, Helldorff says he would like
to see governments or central banks issue their own digital currency, which
would facilitate more modernized payment processing while providing the
stability of being backed by fiat currency. Currently, central bank digital
currencies are in various stages of exploration and development in countries including
China, Singapore and Sweden.

“Governmentally backed digital currencies
are simply a digital representation of the currency that they represent. Their value
doesn’t change,” Helldorff says. 

“And it is a digitally certified
payment instrument that you can’t alter, you can’t fake, you can’t change. That’s
the next evolution.”

Helldorff says airlines and other
travel suppliers should begin preparing for this shift now – developing standards
and systems to connect a digital payment type to a travel record.

“We all know it takes years for these
specifications to be endorsed by IATA, by everybody, so I think it’s the right
time when we are not terribly busy – while we are waiting for things to get better. …
We might use some of this time to think about what’s the next big payment
options, get prepared and maybe be the first industry to be able to cross-border
accept those currency units,” he says. 

By linking central bank digital
currencies to a smart contract – a mechanism inherent to blockchain-based
cryptocurrencies – the process of payments between travelers, intermediaries
and suppliers would be faster and frictionless. 

Helldorff says this automation
creates a significant advantage that will eventually motivate broad adoption of
smart contracts and distributed ledger technology by the travel industry.

“With a smart contract, there are defined
rules for what happens in what situation and the money just bounces around because
there is no need for clearing and settlement,” he says.

“There’s no invoicing and bank
transfers and checks going forth and back to make that money flow work. The
booking, the order itself, holds the financial value or access to the financial
value and distributes the financial value as per order and moves the money
between the players as the services get executed or as the contract stipulates.

“This is how I see the future of settlements happening in the airline
ecosystem.”