In this episode of The Embedded Finance Review Podcast, host Lars Markull speaks with Eric-Jan Krausch, founder of 1-CP (One Click Procurement). Drawing from his extensive experience in the travel tech industry, Eric breaks down the intricate payment structures that power global travel bookings and explains how these complex systems create challenges and opportunities for embedded finance innovation. From legacy Global Distribution Systems to modern virtual card solutions, this conversation offers a rare glimpse into the hidden financial infrastructure of an industry that processes billions in transactions annually.
The Travel Industry Value Chain: A Complex Ecosystem
The travel industry consists of multiple interconnected layers that work together to deliver seamless booking experiences:
- Direct channels: Hotel and airline websites where consumers can book directly with suppliers
- Indirect channels: Distribution networks including Online Travel Agencies (OTAs), Global Distribution Systems (GDSs), and channel management systems
- Channel managers: Modern tech solutions (past 10-15 years) that help suppliers list their inventory across multiple platforms
- Global Distribution Systems (GDS): Legacy systems like Sabre and Amadeus that bundle suppliers and enable travel itinerary creation
- Central Reservation Systems: Platforms that manage inventory across multiple properties for hotel chains
- Travel Management Companies: Corporate travel specialists that handle business travel arrangements
Eric explains that hidden payment flows lie between all these intermediaries. These flows are often facilitated through virtual cards, with each party taking a margin from the transaction.
The Rise of Virtual Cards in Travel Payments
Virtual cards have become a dominant force in the travel industry's B2B payment infrastructure:
- Merchant of Record evolution: OTAs like Booking.com have evolved from brokers to becoming merchants of record through services like Booking.com Pay
- Commission collection: Virtual cards allow OTAs to collect commissions immediately rather than through after-booking settlements
- Interchange revenue: The travel industry has seen a "gold rush" of companies issuing virtual cards to capture interchange fees, especially from commercial cards, which aren't capped in Europe
- Cash flow advantages: Virtual cards help companies tap into cash flow earlier in the booking cycle
- Legacy compatibility: Card-based transactions remain dominant because the industry's infrastructure was built around card processing from the beginning
Eric notes that specific card range numbers were designated for travel industry payments (like UATP for airlines), demonstrating how deeply embedded card payments are in travel's technical foundation.
Legacy Systems vs. Innovation: The Technology Challenge
The travel industry faces unique challenges when implementing new payment technologies:
- Successful standardization: The industry achieved remarkable global standardization decades ago, but these systems haven't fully evolved for the web 2.0/3.0 era
- New Distribution Capability (NDC): Airlines are trying to modernize with NDC, which allows the unbundling of products (separate pricing for seats, baggage, meals)
- Interconnection hurdles: The biggest innovation challenges lie in connecting systems rather than within individual companies
- Trust mechanisms: Established systems built on card schemes provide critical trust for global transactions
- Political obstacles: Existing intermediaries protect their business models, making disruptive change difficult
- Adoption requirements: New standards require widespread industry acceptance to achieve the same reach as legacy systems
B2B vs. B2C: Where Travel Payment Innovation Thrives
Eric highlights key differences in payment innovation between business and consumer segments:
- Volume advantage: B2B payment innovations can process larger transaction volumes more quickly once adopted
- Buy Now Pay Later challenges: BNPL faces higher risks in travel due to the time gap between booking and service delivery
- Fraud concerns: Travel's high fraud rates make consumer credit innovations particularly challenging
- Regulatory requirements: Tour operators face strict regulations around cash flow management
- Split payment innovation: New solutions for group travel bookings are emerging but face technical limitations
- System compatibility: Many consumer-facing innovations are constrained by legacy booking systems
Future Innovations: Tokenization, Loyalty Programs, and Web3
Despite challenges, several promising areas for travel payment innovation are emerging:
- Ticket tokenization: Potential for secondary markets where non-refundable tickets could be resold
- Blockchain initiatives: Projects like Camino Network are exploring Web3 applications for travel, though widespread adoption remains elusive
- Frequent traveler programs: Airlines and hotels are expanding embedded finance offerings around loyalty programs
- Bundled perks: Credit card issuers are creating more flexible benefit packages across multiple travel suppliers
- Cross-program functionality: Loyalty programs are opening up with cross-brand capabilities (like Miles & More with Sixt)
- Corporate expense integration: Business travel tools are increasingly connecting with accounting and expense management systems
Eric's Journey in Travel Technology
Eric-Jan Krausch brings valuable firsthand experience to these topics:
- Founded Acomodeo in 2014, an online travel agency for corporate apartment bookings
- Worked with over 40 multinational corporations to provide global accommodation solutions
- Learned the complexities of travel distribution and payment systems through direct experience
- Sold Acomodeo in 2021
- Founded 1-CP (One Click Procurement) to bring B2C payment convenience to corporate travel
- Currently focused on helping businesses access corporate travel services with simplified payment solutions
This conversation reveals how the travel industry's complex payment infrastructure creates barriers to innovation and unique opportunities for embedded finance solutions that understand the industry's specific needs.