Industries
Travel and Logistics
Data and AI in Travel Industry for a Memorable Passenger Experience
Highlights
- The traditional loyalty model in the travel industry, characterized by cumbersome point-based systems and disjointed reward structures, is no longer sufficient to captivate the modern consumer.
- Travel companies can leverage data to create personalized loyalty programs, tailoring rewards and incentives to individual preferences and context, thereby fostering deeper customer engagement and loyalty.
- Fintech technologies such as blockchain, decentralized finance (DeFi), and digital currencies can help companies navigate the complexities of customer engagement and create a seamless, secure, and transparent loyalty experience.
On this page
Pitfalls of loyalty programs
Today’s loyalty programs come with a plethora of challenges, ranging from overcrowded lounges to a lack of members-only offers by companies.
Industry experts believe that over half the adults in Europe are members of at least one loyalty program. The traditional loyalty model in the travel industry, characterized by cumbersome point-based systems and disjointed reward structures, is no longer sufficient to captivate the modern consumer. To exceed customer expectations, companies in the travel industry are looking to expand their engagement with consumers across various aspects of their lifestyles through concepts like loyalty as a service (LaaS). Specifically, the travel industry is looking for fintech-driven innovations to enable seamless, data-driven payment solutions that reimagine loyalty as a dynamic, personalized experience that establishes trust through transparency at every customer touchpoint.
The question arises: how can fintech help in the customization of loyalty with a specific focus on the travel industry? Fintech addresses another enigmatic issue, which is the increase in the company’s liabilities due to unclaimed loyalty points, which further results in the deterioration of the value of such points, thereby severely affecting the goodwill of the entire loyalty program. With unclaimed loyalty points translating into hundreds of billions of dollars, businesses need to look for ways to relieve themselves of the obligation to pay back consumers. Companies are turning to fintech solutions such as blockchain to convert these points to other rewards for them to be used efficiently.
Additionally, fintech solutions enable businesses to collect and analyze vast amounts of customer data. This data can be leveraged to create highly personalized loyalty programs, tailoring rewards and incentives to individual preferences and context, fostering deeper customer engagement and loyalty. As the fintech landscape continues to evolve, we explore emerging technologies such as blockchain, decentralized finance (DeFi), and digital currencies and their impact on loyalty and payments. We also offer insights and actionable strategies for travel companies looking to adapt and thrive in the ever-changing landscape of customer engagement and vendor optimization.
How fintech can enhance loyalty management
Loyalty programs are portrayed as exclusive entities that offer entry into a special community and a sense of prestige to members.
Members feel valued, appreciated, and part of something special. The focus is on fostering a sense of belonging, rather than solely prioritizing commercial interests.
However, even with advanced programs of tiered loyalty, navigating the complex rules and regulations for earning and redeeming rewards can be disappointing for customers, leading to decreased loyalty. The varying benefits and requirements across different tiers can create a sense of uncertainty and unfairness, particularly for customers who feel they are stuck in a lower tier despite their frequent travel.
Challenges with traditional loyalty models
Traditional loyalty programs have complex earning and redemption structures, which can deter travelers from participating in the program or discourage them from redeeming their rewards. Listed redemption options, such as airline miles or hotel points that can only be used for specific purposes, further frustrate travelers who prefer more flexibility in how they use rewards. Additionally, traditional loyalty programs often follow a one-size-fits-all approach, which lacks personalization. They offer generic rewards and promotions to all customers, which does not resonate with travelers who are looking for unique experiences.
Relationship between fintech, loyalty, and payments
Fintech innovations have revolutionized payment methods in the travel industry. Digital wallets, mobile payment apps, and contactless payment solutions offer travelers convenient and secure ways to conduct transactions. Fintech companies in the travel space often develop their own payment platforms or partner with established payment providers to offer seamless payment experiences, which improves customer experience and enables travel companies to capture valuable transaction data for targeted marketing and loyalty initiatives. Fintech companies can partner with these travel providers to integrate loyalty programs directly into their payment systems. For example, customers may earn loyalty points or rewards for booking flights through a fintech-powered platform. This integration streamlines the booking and payment process while enhancing customer loyalty. By leveraging data analytics and artificial intelligence- (Al) driven algorithms, fintech platforms can offer personalized travel recommendations, customized promotions, and tailored loyalty rewards.
How fintech can drive loyalty and cost savings
Fintech algorithms can analyze travel data in real time to offer personalized pricing and discounts to travelers. By considering factors such as travel history, preferences, and demand patterns, fintech platforms can dynamically adjust prices to provide competitive offers. This personalized pricing strategy not only attracts budget-conscious travelers but also encourages repeat bookings, driving loyalty to the platform. Fintech companies often collaborate with travel suppliers, airlines, hotels, and tour operators to offer exclusive deals and discounts to their customers. By leveraging these partnerships, fintech platforms can provide travelers with access to a wide range of travel options at competitive prices. Fintech innovations have the potential to revolutionize the travel industry by driving loyalty through integrated loyalty programs, personalized pricing, cost-effective payment solutions, value-added services, data-driven personalization, and strategic partnerships.
Blockchain and DeFi will bring a host of benefits
Emerging technologies in the fintech space have the potential to enhance loyalty management in travel.
Blockchain: It offers immutable and transparent transaction records, enhancing security and trust in the travel industry. Smart contracts enable automated and secure transactions, reducing the need for intermediaries and lowering costs. For example, blockchain-based platforms like Winding Tree aim to decentralize the travel marketplace, connecting travelers directly with service providers.
Decentralized finance: DeFi platforms leverage blockchain to offer decentralized financial services. They enable lending, borrowing, and trading without intermediaries such as banks to facilitate peer-to-peer lending for travel expenses or trip cancellations. For instance, universal market access (UMA) enables the creation of synthetic assets that track the value of travel.
Digital currency: Digital currencies, including stablecoins and central bank digital currencies (CBDCs), enable faster, cheaper, and more accessible cross-border transactions compared to traditional fiat currencies. For example, Expedia accepts Bitcoin as a payment method for hotel bookings.
Benefits of fintech for loyalty and payments
Enhanced security and transparency: Immutable transaction records prevent fraud and ensure loyalty rewards are accurately distributed. Smart contracts can automate the terms and conditions of loyalty programs, ensuring travelers receive rewards instantly upon meeting the criteria.
Cost savings: DeFi platforms can significantly reduce costs for loyalty program operators by reducing transaction fees and overhead costs, resulting in better rewards. Further, these platforms can generate new revenue streams for travel companies, enabling them to afford loyalty programs and invest in making them more innovative.
Global accessibility: A major challenge with traditional loyalty programs is the number of steps involved in the redemption of loyalty points. Digital currencies will allow travelers to easily redeem these points. This will enable travel companies to promote their loyalty programs better.
Fintech can be leveraged in loyalty programs in a number of ways
Tokenized loyalty rewards: Travel companies can tokenize loyalty rewards using blockchain, allowing travelers to trade or redeem them across different platforms and providers. Tokenized loyalty rewards enhance flexibility and interoperability, enabling travelers to maximize the value of their loyalty points.
Decentralized payment solutions: These DeFi-powered solutions enable travelers to make peer-to-peer payments without relying on traditional banks or payment processors. Smart contracts can automate payment terms and conditions, ensuring transactions are executed securely and transparently. Decentralized payments solutions can enable companies to extract more granular data, which can be used to offer more targeted rewards.
Cross-border payments with digital currencies: Travel companies can accept digital currencies like Bitcoin or stablecoins for booking payments, offering travelers a fast, secure, and cost-effective payment option. Digital currencies enable seamless cross-border transactions, eliminating the need for currency conversion and reducing transaction fees. If a loyalty program is integrated with digital currencies, it will attract more customers as compared to one that is connected to traditional payment options.
Travel and fintechs: Three key themes
Travel companies must pay attention to three transformation themes to incorporate fintech into their loyalty ecosystem.
Loyalty as a service
This transformation theme primarily applies to large conglomerates, consortiums, and aggregators. Large conglomerates or a related group of companies can build a loyalty network powered by blockchain. This will allow them to build a platform where subsidiaries, related group companies, and external partners can integrate, create, and manage individual loyalty programs that are part of a larger expandable network. The stakeholders can also leverage a single currency or token that can be earned and burned across the entire network with a higher level of personalization that is yet to be seen in the industry.
Organizations can use providers of loyalty as a service to leverage services related to customer engagement, data analysis, program design, and loyalty management. This will allow them to focus on improving their core product and services, while still delivering valuable loyalty programs for consumers.
The key advantage here is that organizations can collect accurate encrypted customer data to curate compelling offers that are personalized to each individual consumer.
Payments as a service
The rapid evolution of the digital payments space has brought forth a new concept: payments as a service (PaaS), which aggregates different payment methods. This enables organizations to choose from a catalog of traditional payments, alternative payment methods, and payment services to meet customer expectations. These methods can include mobile wallets, digital payment methods like unified payments interface (UPI), and debit and credit cards. Additionally, concepts like buy now pay later (BNPL) and tokenization can be introduced. Based on the customer's preferences and convenience, companies can introduce different fintech players that want to access the organization's larger network as well as gain exposure to a wider audience of customers.
The concept of payments as a service fits into loyalty perfectly because travelers are always looking for a wide range of payment methods to earn and burn. With the ability to dynamically provide multiple combinations of payment methods for each transaction, customers can make a single purchase in the most optimal manner using as much of their current assets or points or money, which gives them the best value for that purchase.
Loyalty powered by a digital register
The modern travel industry is increasingly becoming more interconnected in terms of using business models that complement one another and systems that now speak to each other efficiently. Similarly, loyalty in travel is headed in the same direction, with multiple loyalty programs now starting to link up with each other based on partnerships agreed upon by involved parties. It is a positive step forward for the industry but lacks the ability to provide a near real-time, transparent experience across different loyalty programs and hyper-personalization capabilities. That's where blockchain comes into the picture.
A digital register will not only allow involved parties to record and access transactional data securely in real time, but it will also provide accurate encrypted data that will allow loyalty providers to create enhanced personalized offers and experiences. With blockchain's many advantages, loyalty providers can dramatically improve their loyal customers’ experience. They can offer elevated platforms to multiple third parties from different businesses. Here, customers can earn and burn points, collect tokens that can act as points, and avail of payment solutions that use blockchain as the underlying technology. This will help loyalty providers reduce the amount of liabilities built up from unused points as customers can spend these points in many more channels. It will also help them gain better insight into customer preferences and create brand value from personalized, differentiated experiences.
The way forward
It is clear that the convergence of fintech and loyalty programs has opened up new horizons of possibility in the travel industry.
By stepping into the uncharted territories of blockchain, DeFi, and digital currencies, travel companies can navigate the complexities of customer engagement and create a seamless, secure, and transparent loyalty experience that is tailored to the unique needs and preferences of their customers. As we navigate this new terrain, it is evident that the future of loyalty will be shaped by the ability to offer personalized experiences that cater to the individual's journey, from booking to redemption.
