Transcript
Introduction to payment innovations in hospitality
Hi, everyone. Episode four. I'm excited to talk about payments, but I realized that not everyone of you is excited. And my goal is to, by the end of this episode, get all of you a little bit more excited about payments and the innovation that has happened in the last decade in this space, means that we as hospitality can create a much more frictionless, much better product for our guests.
But a lot of people don't really understand where how to approach this very complex topic. And I'll try and explain because I've lived through hotels. I I remember my first day in the reservations team at Hilton twenty years ago.
And the lady that was training me on a Monday morning said, okay. So what we do, first thing, we process nonrefundable reservations from the weekend. So she take this stack of papers that were had come in through different sources, and they had sixteen digit credit card numbers on all of the reservations. And she would go grab a payment terminal from the front desk, and she would start processing these sixteen digit numbers on this on this payment terminal.
And then she'd staple the receipts to the bill, and then then she passed those to the front desk who would check-in the guests. And then at nights, they would go to finance who had to manually reconcile all of this. And I'm sure that some of you watching this today are like, yeah. That's how we do it still today.
And it's crazy. It's it's unnecessary because the innovation in payments has gone far beyond needing to do these types of motor transactions that come with really high chargeback rates.
Chapter
Understanding embedded vs. integrated payments
But not every one of you is is fully aware of what the possibility, is today. So I'm gonna break this down to four blocks. So the first one is explaining embedded versus integrated.
There's a distinct difference from asking for an integration with a payment processor versus having an embedded product where it is deeply embedded into all of the workflows.
So I'll I'll talk through that. Secondly, security.
It it is so critical because you are handling someone else's credit card details. If you look at the data breaches that have happened in hospitality, they're all evolving around payments, that, you know, people want to get access to people's payments cards.
So we have to protect our guests and you can do that much better today than we could in the past. So that's the second block. The third one is around cash flow. As a hospitality business, cash flow is king, and it is important that you collect as much money as possible, so cash flow.
And then fourthly, it will be automation workflows where, the automation that you can achieve today that we couldn't ten years ago, is off the charts. And it's, like, it's it's really exciting if you think that you should never have to talk to a guest ever again about payments or as little as possible, because you get to focus on the guest experience if we just take care of the automation in the background. So those are the four areas I'm gonna talk through. Thanks for returning, and I'm excited to hopefully get you excited about payments.
Right. The first block. I want to talk about integrated, payments versus embedded payments. But the example I gave from my time at Hilton at the reservations departments where we were taking, motor transactions, meaning I punch in my sixteen digit credit card number on a payment terminal. That is a stage before integrated, meaning, base those are motel transactions, mail order, telephone order transactions.
They're not integrated, and you need humans for every step of that payment process.
And they're also the highest risk. So I think, you know, if you are still doing those transactions, you are at the highest risk of chargebacks because all you get is a credit card number and expiry number, but you really don't have a leg to stand on when a customer says, I didn't recognize that charge. I want a chargeback.
And we're seeing really high chargebacks in hotels that are still doing those types of transactions.
And it it's really hard to find a chargeback, so it's very likely you'll lose. So, we've seen a move for hospitality into integrated payments in the last decade where, one, on the website, you might have an integration that says, if it's not refundable, just charge a credit card rather than passing it on to a human. But if it's fully flexible, they might just pass the credit card details, but not charge it at a later stage because it requires a deeper integration.
Or you might see an integration at the front desk where when you're checking someone out and you say, oh, the bill's a hundred euros, and the PMS has to tell the payment terminal to to say, ask for a hundred euros on the payment terminal. And then once the payment is taken, that terminal communicates back saying, I've now taken the payments, but you still need a human in that process to help out with that with with the transaction.
So there's been a huge transformation, and I think the best example is probably Uber versus taxi.
Chapter
How payment experience has changed in hotels
Once Uber introduced their app, and, you know, there's two two major components to that, which is the geolocation saying, I can instantly order a taxi to where I am at that moment.
But the second innovation has been around payments, where you've got a profile and it has a credit card in it. And you just walk out. You just walk out of the taxi, and you can handle the tip later if you want to, but it's just automatically transacted. A bill's automatically sent to you.
And and that's been really transformational because people love it. You don't have to sit there awkwardly at the end of your taxi ride thinking, do I have enough cash to pay this driver or pay with credit cards and give them a tip?
It's it's really smooth.
The innovation that's come through that that cycle, is what we call embedded payments. So where it's a core component of every experience that you're having with the system that you're operating on, that you don't even notice that the payment is there. It's so seamless.
So that's the the distinct difference between integrated where a human still needs to ask you for the payment, say, tap your credit card to the device versus embedded where it's just a native process where most of the time no human needs to get involved in that.
And that's really where Muse has moved into into this embedded space.
And one of the big components is that storing of the credit card details on your profile. So the moment the credit card hits the system, we will send it through, a vault. So we work with a, tokenization vault. They will just take that credit card number.
They will store it. They will encrypt it, and they will tokenize it. And they will just pass us a token. So no one at Muse or no one in a Muse hotel will ever see sixteen digit credit card numbers in the system.
And that's really critical because that's such a big security leak that can happen. And when you see these big data breaches in the big brands where, you know, they've captured millions of credit card details, they're not coming from modern systems with encrypted credit card numbers. They're coming out of the legacy systems where those credit cards are not tokenized.
So token is really, really critical, and you can quickly recognize that it's a modern system when they use tokenization.
The other, word that I had to learn that I never really understood what it meant when someone talked to me about omnichannel solution, and I thought it was just like that's just some fancy word. But it's actually really important because it means multiple channels that are working together really closely. So, you know, while integrated might have something on the website, they might have some per payment of terminal integration, And it still is quite clunky and disjointed.
With an omnichannel solution means that all your payment solutions, whether they are digital, like like on the website or online check-in, they are fully working together with what's happening on the payments from a physical payment terminal at the hotel. So a good example would be if a guest checks in at the hotel, and and you say, hey. You know, I need to take, your credit card payment for I don't know. Pre authorization for your check-in, for five hundred euros. The guest taps their credit card on the payment terminal. We will take the transaction, but we will also tokenize the card, for future transactions.
So the experience that you often have in a hotel that if you stay in a resort and after five days, you've run out of credits, you get a message from the reception saying, please come back down to re pre authorize your card.
That shouldn't happen in a true omnichannel solution because that credit card is sitting on the guest profile, tokenized, and you can automatically take a preauthorization from that card without having to get a guest to come back to the reception.
So you just have significantly less credit risk because there's a risk that a customer would leave early, with an open balance, but you don't have a physical credit card on file.
But now you would. In an embedded payment solution, you can ensure that everyone who's walked through the door has embedded, has their payment details captured.
Those payment details are hopefully captured through a secure way, and then you can transact those that card time and again afterwards.
Another major thing that we've been able to achieve through MetaPayments, is on the restaurant side, where our restaurant POS is now just a simple smart device. And that smart device is the POS, but it is also the payment terminal. So what you see in most restaurants is that when you say, oh, can I pay by card? You know, you get the bill, and then they have to come with a separate terminal. And then that receipt, they have to manually post in the POS. And all of this is manual reconciliation that has to happen.
And with an embedded payment experience, it is all smoothly done. At the end of the day, we or, you know, the next day, we will pay out that hotel. You get a report, and the accountant can just say, this is what's in my bank account, and this is what the report says. Great.
My work is done. There is no manual checking of all of the receipts because all of that is transacted by a single payment processor in the system, and the reporting is completely aligned both on what you transacted and what you then get paid out minus the commissions. So it saves a huge amount of time once you go with truly embedded payments. So most hotels that come to us at the beginning saying, you know, I would like an integration.
It is important to allow us to take you down that path of explaining what the difference is between the integration that you're looking for, which is what you've probably had with your previous vendor, and what we've built is embedded. And there's only very few parties in the industry that can do what we've done with Stripe and with Adyen, which is true embedded payments across our platform.
So it is really hard to to to just do an integration like you used to because, actually, that is significantly worse than what the embedded experience could be for your guests.
Chapter
Security challenges in payment processing
Let's talk about security. It is one of the most important components of taking payments.
And we've historically, as an industry, not been great at this. I remember, again, my twenty years ago, but I'm sure a lot of our telliers will relate to this. So one is the example that I gave where we just have these sixteen digit credit card numbers printed out on piece of paper in our back office.
The other one is when we did a group check-in, and we needed to take credit card payments really fast, and we just didn't have time. So we take this device, and we put the physical card in with a carbon copy on top, and then you'd run it across, and it would take a physical copy of it. These things just are just crazy that that we were doing that at the time, but it was the only way to take credit card payment sometimes when the systems went down.
Today, PCI compliance is very complex. You know, PCI DSS, like, it's, you've probably heard it. Payment card industry, data security standard. And those standards are very high. And our industry is not great at being compliant.
If you are taking payments, you should probably do a self audit, to verify how you're handling credit card payments at your hotel.
If you are seeing sixteen digit credit card numbers in on any of your systems, then you need to think about how do you handle that. Do you destroy those credit card numbers if they're printed on a piece of paper? You need to have a process to get rid of those numbers or protect them in some way, and you need to clearly document that. And we don't often do that in hotels.
We don't have those process in place. So the safer option is to work with the tokenization solution. So like a solution I've used, but actually, you know, a lot of modern cloud systems, have tokenization solutions because anyone who's in the cloud, you know, we don't wanna store a sixteen digit credit card numbers that are sitting unencrypted because that's what, criminals are for. They are out there looking for sixteen digit credit card numbers.
So don't store them in the cloud because they'll find it. So that's where tokenization comes in. They get, that that long number, they encrypt it, and then the token can be transacted. But you can never say, okay.
I type in a password and I see the credit card number anyway. You can only transact it. So that keeps hotels out of scope, the biggest portion of the scope, because you don't see those credit card numbers in the PMS system directly ever.
So so that's why tokenization is a really critical component to modern security and making sure that you are PCI compliant.
A a change that's happened in the last few years is, PSD two, this new regulation that came out that say, when you take a transaction in Europe, you want a two lakh, verification. So you wanna make sure that, one, you've got the credit card details, that you somehow received. But there needs to be a verification from the person that owns the credit card that they are allowing you to charge that credit card so that there's a second factor required.
So, and that's where three d s comes in. So often when you now check out on ecommerce websites, you are rerouted and you're being sent an SMS, for example, or you have to log into your banking app to verify that payment. So most modern systems have now updated to support three d s, three d secure.
If your system does not, that means that those payment transactions are going in a higher risk category. And that means that they're more expensive ultimately. And that there's a higher risk of chargebacks. Because if you receive a chargeback there is a very low likelihood of you being able to defend yourself against it. However, when they are three d secured, meaning that we have real validation from the credit card holder that this is them, the the risk of chargebacks is almost zero. When we see those transaction come in, we we don't see chargebacks happening. So it's it's really, really powerful to have three d secure and forced for, as many customers as possible.
Chapter
Digital transactions vs. card payments
Another, important thing is understanding what it means, ecommerce and cart presence. So if I transact my credit card on the website, that is a ecommerce transaction. Those are generally more expensive transactions because they are considered higher risk transactions.
Then when I walk into the lobby and I tap my card on the payment terminal where the terminal can see, yes. This is a physical card. The person is right here in front of me. And card presence are the the the the safest transaction because the human is there with the card.
And and that means the lowest risk of chargebacks again.
So I've mentioned chargebacks across the board and because it's it's one of the most frustrating things that happens in hotels when you take payments. And especially hotel that takes payments in advance, nonrefundables that are non two three d secured that have just been processed on a terminal, you will see an elevated risk of chargebacks.
And, you know, if a chargeback is three, four hundred euros, typical transaction is about two hundred and fifty euros that we see across our systems, that hurts. That's a lot of money, and and that needs to be taken into the calculation towards your payment fees because a modern solution will take down those chargeback rates. And not only does it hurt, but it also takes a huge amount of time for your team to look up registration cards with signatures from guests to verify that they have actually stayed with you. So chargebacks are an absolute pain. And we've seen with embedded payments, those numbers have come down tremendously. So I'd say if you are in a forward thinking solution today or if you're thinking about it, really make sure that all of the systems support three d secure transactions so that ecommerce transactions are validated, and then that lowers the chargeback risk significantly.
Make sure that they have tokenization so that your security standards can come down or, like, your compliance can come down because you don't need to worry that much about the tokenized cards.
And make sure that your card presence also is the best card presence solution that's in an omnichannel solution that works with your PMS.
That helps drive down, the security risks, but also the chargeback risk that you're seeing and ultimately saving you a lot of money.
Chapter
Cash flow management and credit risk
I have another great topic. Cash flow and credit risk. This is an important one because, we in hotels, we run a lot of risk the way we operate. We we we create bookings months in advance before guests show up, and we don't know whether they're gonna pay in the end. So cash flow is really king. And especially through the seasonality, we have to think about this.
If you have a large mix of OTA business, so coming from Ubooking dot coms and New York Expedias, in the last few years, their strategy has hugely impacted your strategy on the cash flow side. Previously, when you got a nonrefundable booking, you would just charge that card the moment the booking came in, and you get the cash even though the guest might check-in two months down the line.
With the rise of virtual cards, there's been a real shift because the virtual card can only be transacted on the day of arrival or the day of departure depending on what you've agreed with the OTA.
That shifted a lot of your cash flow to a much later stage, putting you at risk as a business, not them, because they are holding the money. They have charged that credit card, and they're holding the money on their side.
So they've got a significantly better cash flow. You've got a significantly worse cash flow. So as you're thinking about your business mix, it is really important to think about how much of my business risk do I wanna put in the basket of the OTA, or do I wanna focus on investing that into my own website so that I can actually drive more?
Chapter
Non-refundable bookings
So let's talk about your own website where you can take nonrefundable bookings and you can take payments at the at the moments that those bookings are made. Why are we as an industry not taking or prioritizing nonrefundables as much? Like, we still see the majority of bookings being flexible rates, where the guest gets a real benefit. They can cancel up to day of arrival and pay nothing.
And if you look at the airline industry, it's the opposite. The airline industry, it's almost impossible to buy a flex rate. And if you want that benefit, you pay really high fees. So it deters people from wanting to book that.
And that means people buy upfront. They know they can anticipate exactly how many guests are coming. Or if they're not coming, at least they've got the revenue guaranteed, which is pure profits to them or mostly pure profit. So I think as an industry, we need to think about doing more on the nonrefundable side like the airlines have done.
Chapter
Why direct bookings matter for cash flow
We need to invest in our own websites to drive more of that business mix because it helps the cash flow.
So so I think there has to be a shift that we're seeing on the nonrefundable side. And when you have embedded payments, obviously, that really helps capture those payments in a secure way, so that that revenue is guaranteed for you.
Another thing that's important is pre authorizations.
So one of the things we do through the automation is is is we automatically can take pre authorizations. So even if it's a flexible rate, we can automate that workflow. We can say, right. On day of arrival at nine o'clock in the morning, take the full rates plus add enough pre authorization of two hundred euros per night, for example, and we can capture those.
And we now have credits with that guest on file. The guest doesn't have to give that credit card when they walk in the lobby, so they have a much smoother experience. That transaction is on your books, so you've lowered your credit risks, with the guest. And if if it happens that the guest runs out of credit because they spend more at the restaurant, which is great, you can just top up.
You have a tokenized credit card. You just press a button and and increase the pre authorization on that card. So you can really lower your credit risk as a business. The other thing is that when you have a no show, this happens often.
You've got a credit card on file and the guest no shows. You try and charge the card and it fails.
And that's because the credit card wasn't three d secured. It wasn't a valid credit card for whatever reason. And this is where embedded payment comes in, where we really increase the security of the credit cards. If we see it's an invalid credit card, when when we tokenize that, we will report it automatically, and we can then cancel that reservation. So again this is where embedded payment comes in because we can instantly see an invalid credit card. We can cancel or notify you that that's happened so that your credit risk comes down. And all of these little things are helping drive down credit risk and increase cash flow for the hotel to make sure that you can run your business without significant risks.
Chapter
Payment automation
So the last but the most exciting bit is the guest experience. So we talked about what is embedded versus integrated payments? What is the security? How do we deal with cash flow and credit risks?
They're all very exciting. The thing that I get really excited about is the ultimate impact that this all has on the guest experience.
Because we don't really no one gets excited about talking about payments to the guests. We all wanna just have a great conversation about their experience and make sure that we spend time upselling our different, solutions at the hotel, like a spa treatment, etcetera. But what we end up doing is most of our check-in time, we ask for credit cards, we talk about bills, etcetera.
And if we can automate that, that will transform hospitality.
So one of the really exciting things that we do, is payment automation. Because in hospitality, there are so many complex rules that we have to take into account. So if it's nonrefundable, we take that transaction through ecommerce at the time of booking. If it's a flexible rate, maybe there you wanna take that a day before arrival, and you also wanna take a pre authorization for incidentals.
If it's a virtual card, then we can only transact that virtual card on the day of arrival, the day of departure. But we still need to ask the guest for their personal card for ancillary charges. So we built that into our online check-in.
And all of these things added up mean that for the majority of guests, I'd like to get to, like, eighty, ninety percent of guests. We don't actually have to talk to them about payments. And that means, like, a typical check-in is four to five minutes. It's a long time. We spend, you know, filling in registration cards, etcetera, the the things we do, but payments is a real component there. And that is about two minutes. If I can remove that, that gives you two minutes to have a real conversation with the with the guest.
So we're still seeing hesitancy of hoteliers to embrace automating the payments, but we're seeing those hotels that do it are gaining back so much time that they can spend with their guests.
And ultimately, that's what all of this should be doing. Guests should have a much smoother experience. You should train your teams on having real conversations on upselling. Like, they shouldn't be talking about payments of things already consumed. They should talk about the products that you want them to buy. The the upsells that you could be making to the spa treatments or the cities that you have or booking that city tour.
And that's really the ultimate impact that you could have through payments. So once on the payment side, you obviously you you secure your risk, you lower your risk, you you can capture all of the money that you're owed. But actually, if I can remove the work, it saves huge amount of labor, on the one side.
But that gives you time back to upsell and to really engage in conversations, to make sure that guests have better experiences at the hotel. No more looking at screens, looking at the guest in the eye. And that's ultimately what we're trying to achieve through embedding payments throughout our products. It's just a better guest experience.
I hope you enjoyed this. I know this is quite a technical Matt Talks. Next week we'll have a slightly different version again of a different topic. But I think it is really important that we understand that payments isn't just payments.
There is so much more that comes to, a fully embedded payment solution that helps drive more security, lower risk, more revenue, more cash flow, but ultimately a much better guest experience.
Thank you.
