The Payment Challenges of Online Travel Agencies (OTAs)

by Dec 7, 2017Merchant, Payments


Who hasn’t used an online travel agency (OTA) in the last 12 months? They are an integral part of our lives and are part of a colossal $600 billion + a year online travel market.

The OTA industry is at a juncture where it faces some unique challenges. Many of these challenges revolve around the effective use of payments.

This article defines OTAs, briefly discusses some of their non payment related challenges and opportunities and then goes into more details on the payment related challenges together with how these can be most effectively addressed.

This article uses the following abbreviations and labels:

OTA – Online Travel Agency/Aggregator

Provider – the underlying provider of the travel product, e.g. Airline, Hotel etc

PSP – Payment Service Provider


Who are OTAs and what do they do?


The OTA industry consists of websites that allow consumers to search for and purchase airline tickets, car rentals, or hotel accommodations from providers of those services. OTAs only serve as an intermediary in the transaction. They provide a valuable service allowing customers to shop around, customize packages, and find special rates.


Growth curve saturating


Growth of OTAs has been driven by bookings moving from offline to online. This shift is believed to be largely complete now at least in high internet penetration geographies. Future growth in these geographies is expected to come from organic means only.


With the exception of international growth


Parts of the world where internet penetration is still low also present attractive growth potential.

Significant momentum in the growing Chinese travel market is also a potential driver. Although this market is dominated by large local players (e.g. Ctrip and Qunar) and localisation presents a high barrier to entry.


Hotels the last remaining growth product


Airline and car rental bookings have been largely flat for the last few years. The primary driver of revenue for OTAs has been hotel rooms.


Providers targeting consumers directly


Top and bottom lines are under pressure as travel providers (e.g. hotels) increasingly target customers directly with the larger chains using loyalty program to encourage direct booking.

Many markets are also dropping pricing parity allowing hotels to price differently on their own sites than the price they offer OTAs.


Google also poses a threat


Google’s product search engine also poses a major risk to the growth of OTAs, increasingly offering better search results with reviews and directing directly to the provider’s site.


Revenue streams for OTAs fall into 3 main categories


Booking revenue
This is where the customer pays for the travel product directly to the provider and the OTA earns a booking fee, either paid transparently by the customer or paid as a commission to the OTA by the travel provider.


Merchant revenue 
This can be broken down into two sub categories:


-Pre-purchase – the OTA bears the costs of the travel product and on-sells it to the consumer. There is a margin between the cost and sell price.


-Marketplace – the OTA facilitates the payment / receipt between consumer and provider. The OTA would charge the provider and/or consumer for the service.


This is the main model of a provider like Tripadvisor. Revenue growth in advertising has been strong year-over-year as providers compete amongst each other to win direct market share.


Other supplemental revenue streams exist within some of the above categories, e.g. float revenue where the OTA is in possession of funds, forex revenue where the OTA may be collecting in one currency and paying out to the provider in another currency.


There are 3 major Western players


The US and Europe as two of the largest markets for travel are dominated by a few large players, namely Expedia, Priceline and Tripadvisor.

Gropay Major OTA Players

Many of the most known websites for travel booking are owned by Priceline or Expedia.

Gropay Brand Owned by Top 3 OTAs


Product innovation


The major players’ product growth focus is on continuing to bring tangential services, e.g. restaurants and activities inhouse via acquisitions and also to increase their Peer 2 Peer offerings to compete with newcomers like Airbnb.


Future Trends


The Blockchain has the potential to remove the need for OTAs all together as consumers and providers can conclude a contract and payment directly and securely via the Blockchain. OTAs may still be able to add value in discovering a provider however given Google’s own moves into presenting flight and travel information a focus on only discovery would leave the OTAs competing with Google.


OTA Payment Challenges


As a highly price competitive and low margin industry, as low as possible pricing of payment services is critical for OTAs. The lowest price possible for an OTA for card payments is by having the PSP apply an interchange++ model where the PSPs margin on top of interchange and scheme fees is transparent. The downside of this is that the OTA takes the interchange risk, should there be an increase in interchange then the OTAs costs could increase substantially. However given the regulatory trends towards cost based and capped interchange this is a low probability risk.

PSD2 surcharge ban in Europe
Surcharging, the practice of adding an additional fee for the use of a particular payment method, e.g. credit card, will be banned from January 2018 as part of the new European Payment Services Directive (PSD2).

The ban aims to protect consumers by prohibiting merchants from charging consumers additional fees for making payments by card, direct debit or credit transfer.

The ban applies where both the consumer’s bank and the OTAs bank are located in Europe.

The scope of the surcharge ban may vary from one country to another – for example, in the the UK the ban has been extended to include payments made by Amex, ApplePay and PayPal.

For payment methods not covered by the surcharge ban, e.g., Diners Club or certain non-card payment methods, any charges applied by the OTA cannot exceed the direct costs incurred by the OTA for accepting that payment method.

PCI compliance
Data breaches are more and more common and can have a potentially damaging impact to the OTAs brand. The cost of maintaining PCI compliance also continues to increase. There is no reason these days though why an OTA would want to touch and store sensitive card data themselves. Most PSPs offer APIs which allow the OTA to achieve their desired UX while outsourcing the entire PCI burden and risk to the PSP. Tokenization means that the OTA can continue to recognise repeat customers and offer them a smoother one click checkout process.

Offering the right currencies
This is almost a hygiene factor now as most PSPs offer a full range of processing currencies. However OTAs that collect funds in multiple currencies need to review whether it is worth their while maintaining a wider range of settlement currencies. Alternatively they can keep settlement currencies to the top 3 or 5 global currencies only and lose some margin in forex costs.

The need to offer a range of payment methods
As with other cross border industries, OTAs need to offer alternative payment methods popular in the geography of their consumers.

Addressing the payment challenges presented by local markets
For example the prevalence of cash on delivery as the dominant way to purchase in the Middle East presents a unique challenge to OTAs where of course cash on delivery is not an option. The lack of aggregating PSPs in the Middle East and in geographies such as Africa and Latin America also presents a challenge as OTAs must integrate with and manage a larger array of PSPs to effectively service whole regions. Some regions like Latin America present their own challenges around taxes and restrictions in being able to withdraw revenue out of the country.

Focus on mobile and omnichannel
OTA traffic like traffic for other online products and services continues to move to mobile devices. The move to mobile provides unique opportunities for OTAs. Consumers more and more wish to discover and purchase via their mobile device while on the move. Location services possible through the phone’s GPS provide the ability to present the most suitable offering to the consumer in real time. Similarly  identifying the consumer as the same consumer that booked via desktop or at a physical agency not only provides the consumer with the ease and convenience of an omni channel experience but also provides valuable cross linked data to the OTA to allow them to improve their offerings.

Fraud management
As sellers of high ticket items OTAs are common targets for fraud. Good risk and fraud management at the OTA and at the payment provider level is critical for keeping fraud to a minimum. In Europe the changes in Strong Customer Authentication (SCA) coming with PSD2 will also help in reducing or keeping fraud to a minimum. Read our blog post on the SCA here for more information on the potential impact for OTAs.

Clear and detailed order and settlement reporting is critical for OTAs. The multiple countries, currencies, payment methods and fees applicable to OTA transactions makes reconciliation a complex process for OTAs. Should the OTA be on interchange++ pricing then the reconciliation process is even harder as the OTA must deal with a large permutation of possible interchange costs as part of the reporting.

Localisation is a critical component of international expansion for OTAs. Localisation is more than just translation, it is making sure that the content is relevant and presented in a way that is expected by the consumer. It  also includes the use of local promotion practices and partnerships.

Payment conversion optimisation
As a low margin, highly competitive business with high costs of customer acquisition a smooth check out process on the payment page is critical for OTAs. Many OTAs continue to make the payment check out process unnecessarily cumbersome instead of moving as close to one click as possible.

Operating a marketplace model post PSD2
PSD2 will raise the regulatory requirements that will need to be met by OTAs operating marketplace models. In essence meaning that unless the OTA wants to focus a part of their attention on maintaining regulatory compliance they will be better off by outsourcing the collection of funds from consumers and the payout of funds to suppliers to regulated PSPs.

Payout and transfer of payment method details
The ability to pay out to providers is a key requirement of OTAs operating the merchant service model. For OTAs operating the booking fee model it is important for them to be able to send payment details to providers for providers to be able to bill for ‘no shows’. The transfer of card details for no shows without CVV codes (not allowed under PCI) can present problems at the provider’s end if their local PSP does not understand the card scheme  rules around the need for CVV codes for no show transaction processing. OTAs have a number of options for payout of collected revenues to suppliers, a poplar global e-wallet like Paypal is the first and default option. Beyond that the next simplest is a bank transfer however it is hard to find a PSP that provides an effective enough geographic coverage for bank transfer to be the only option needed by a PSP. Being able to issue a virtual card and paying out through that requires more effort but provides the OTA the ability to reach any provider that has the ability to accept funds on cards issues by global card schemes.




OTAs are an important part of the online travel vertical which in turn is one of the largest verticals in terms of online volume processed. OTAs operate in what is now mainly a mature and saturated industry with a few large global players and some smaller niche players. OTAs face pricing and margin challenges not only from competition with other OTAs but also from providers increasingly targeting consumers directly, from search engines like Google and potentially in the future from Blockchain technology.

Payments are a critical component of an OTAs business and OTAs face some unique challenges in this area due to their global reach and diverse revenue models some of which are coming under increased regulatory control.

Should you wish to discuss OTAs in general or understand more about the services Gropay provides to OTAs then please Contact Us or why not take advantage of our limited Free Initial Consultation offer.


Submit a Comment

Your email address will not be published. Required fields are marked *


Gropay provides management consulting and interim management services globally in the areas of online payments, mobile payments and point of sale POS payments. Our clients span the entire payments value chain from schemes to merchants and also include private equity investors, technology and mobile companies. The Gropay team consists of proven industry leaders with extensive experience both on the demand (merchant) and supply (Payment Service Provider, acquirer, scheme) sides with a focus on sales and business development, operations, risk, compliance, valuation and due diligence.

Visit our homepage


GDPR for Payments

GDPR for Payments GDPR is an important EU wide regulatory mandate. It provides increased protection of individual privacy and gives individuals more control over the information they share. In our view GDPR is an important element of building a scalable data centric...

read more
US Supreme Court repeal of PASPA

US Supreme Court repeal of PASPA

US Supreme Court repeal of PASPA On Monday, May 14, 2018, the Supreme Court of the United States held in the Murphy v. National Collegiate Athletic Association case that the federal Professional and Amateur Sports Protection Act (“PASPA”) violated the Tenth Amendment...

read more
Gropay’s 5 Tips For The Holiday Season!

Gropay’s 5 Tips For The Holiday Season!

GROPAY'S 5 TIPS FOR THE HOLIDAY SEASON With all the preparations for the holiday, last week deadlines, the multitude of drinks, parties, last minute shopping as well as high expectations from family and friends, it is easy to get lost in this busy time before the...

read more
Is the future of payments happening in India now?

Is the future of payments happening in India now?

India Makes Important Advances in Biometric Payments In India it’s already possible for a consumer to authorise and authenticate a payment with their fingerprint or iris scan. As a largely cash based economy India has leapfrogged the use of Cards and Smart Phones for...

read more
How Do Bitcoins Impact Online Merchants?

How Do Bitcoins Impact Online Merchants?

How do bitcoins impact online merchants? There’s a lot that has been said and written about bitcoins. They are the talk of the town these days. Undoubtedly bitcoins and related distributed ledger technologies will have a lasting impact on payments and financial...

read more
PSD2 What Will Really Change?

PSD2 What Will Really Change?

PSD2 What Will Really Change? There has been a lot written about the PSD2 and rightly so, it is important regulation soon to be enacted into legislation that will bring significant innovation and change to electronic payments. But what will actually change in the day...

read more
SafeCharge Three Years After IPO

SafeCharge Three Years After IPO

SafeCharge 3 Years After IPO In this post we look at SafeCharge, a medium sized payment processor and recently formed acquirer. We look at the following items; history, the IPO, recent performance, drivers of growth so far, recent strategic moves and execution...

read more
PSD2 What Will Really Change?

The Stamina Of Clinton Or Trump?

The Stamina of Clinton Or Trump There have been lot of comments made by presidential candidate Donald Trump triggering a lot of media attention and public debates recently. Not the most notorious comment, but still one that made me pause in the work I was doing....

read more
PSD2 What Will Really Change?

GDPR – Data Protection Gets Serious

GDPR - Data Protection Gets Serious On 14 April 2016, the EU Parliament adopted the long awaited General Data Protection Regulation (GDPR) The GDPR will have considerable impact on all companies that provide goods or services to Europe, regardless of the company’s...

read more
PSD2 What Will Really Change?

Authentication – Payer! Reveal Thyself

Authentication - Payer! Reveal Thyself EPC releases results of latest consultations for e-mandate today: what does this mean for authentication and your online business? Earlier today, 5 April 2016, the European Payments Council (EPC) announced the launch of the...

read more
PSD2 What Will Really Change?

Fantasy Sports – It’s All A Fantasy

Fantasy Sports - It's All A Fantasy Fantasy Sports continue to gain popularity California recently introduced a bill to allow online sports betting. The motivation of this bill is believed to be the increasing popularity of fantasy sports. Although, the bill has yet...

read more
PSD2 What Will Really Change?

Cash – Kicking The Habit

Cash - Kicking The Habit There was an interesting article in The Economist recently about strikes on the London Underground (Tube). Such strikes are commonly believed to have a short term net cost to the economy. However the article quoted a study by Oxford and...

read more
PSD2 What Will Really Change?

Data Protection – To Russia With Love

Data Protection - To Russia With Love Data Protection Russia Russia’s new data protection law came into effect on the 1st of September 2015. It’s now required by law to store personal details of Russian citizens on servers physically located in Russia. Copies of the...

read more

Dressing For Work – Looking The Part

I had a manager once who was a real mover and shaker in HR, brilliant in strategy and amazing to work with. Although visionary in his business outlook, there were some basic things that could really set him off when meeting new people: things like scruffy shoes. You...

read more

Tattoos – Ink At Work

Are Tattoos ever OK at work? I was HR Director at a large organization when I suddenly completely got caught by a curb ball thrown by one of my main stakeholders. “What is our HR policy on tattoos?”  I had to take a two second pause before responding with a gigantic...

read more

Wirecard’s $9 Billion Bid For Worldpay

Wirecard with a market value of $ 5.2 billion made a $9 billion bid for Worldpay. Is this a serious bid? What will Wirecard do with Worldpay? Wirecard has extensive experience with M&A and also in acquiring companies larger than itself and making it a success; as...

read more

Changing Jobs – Stay Or Go?

Changing jobs - How long should you stay in your current job? In this day and age, most employees are not even aware that organisations used to have tenure incentives like a fancy watch, a toaster or at least a bunch of flowers when you reached your 20 or 25 years of...

read more

Distracted Living – A Simple Life

Distracted Living Psychology Today published an interesting blog on distracted living. Distracted living is where you miss out on much of your life because you generally aren’t paying attention, or your attention is so torn in many directions that your really do not...

read more

Is Visa Worried About Paypal?

Is Visa worried about Paypal? Visa recently published a report on Visa Checkout in which they stated that Visa Checkout delivers 17% better conversion than Paypal. One of the interesting points about this report is that Visa considers Paypal as enough of a threat to...

read more

Mergers And Acquisitions

How do I deal with my company going through a merger or acquisition? Working in the payments sector? There is a big chance that your company is engaged in a merger, is taking over another company or is about to become an acquisition. 2014 was a big year for payments...

read more


Pin It on Pinterest