After BNPL (Buy Now, Pay Later), it is now TNPL (Travel Now, Pay Later). BNPL has gained popularity specially due to the demand from e-commerce retail markets, the BNPL industry is poised to grow at a CAGR of 56% over the coming year.
After staying indoors for nearly two years during full and partial shutdowns imposed to counter the COVID-19 pandemic, people are excited to travel. However, the loss of income due to job loss, salary reduction, etc. due to closures and increased spending due to high inflation can be a drag.
After the restoration of jobs and full pay with the normalcy of the pandemic situation, the financial outlook may have improved, but the decline in savings during the financial crisis may lead to a shortage of funds to plan a trip. So, people are looking for ways to finance their trip without missing out on opportunities.
The nuances of a travel industry have created a demand for a TNPL, which is more specific to the needs of the travel industry compared to a generic BNPL.
“Traveler expectations continue to shift from traditional lending methods to alternative and easy digital payment solutions. That said, the unique approach of a BNPL cannot be replicated for a complex product like travel, with its own nuances,” says Abhilasha Negi, co-founder of TNPL specialist SanKash.
Here’s how the needs of the travel industry differ from those of the retail markets:
Travel is a complex and highly personalized product
The travel buying cycle has three main stages –
- First, it starts with dreaming about an experience;
- Second, explore options with various travel merchants to identify the dream package;
- Third, finally book for a dream vacation.
It takes between 2 and 3 days to a week for a traveler to plan and finalize their vacation choice, with very time sensitive price fluctuations in the final product. In addition, each stay must be personalized according to the requirements of the traveler. The complexity of the product and the high level of personalization make the purchase more likely to be pushed by offline merchants than online. Therefore, this requires a specialized TNPL payment solution that is sensitive to the needs of the traveler.
This is different from a retail or e-commerce product which is only available with a few clicks. TNPL considers nuances of personalization to be part of the underwriting criteria for each vacation package.
The travel industry is unique and makes credit assessment difficult for lenders
Unlike any other industry, the travel industry has no fixed MRP. It has a complex distribution of services and there are no OEMs in the segment. All of these factors make it difficult for any lender to perform a credit risk assessment of the travel product purchased by a traveler. TNPLs, on the other hand, allow risk assessments based on travel data points to analyze the risk in each case.
“The risk assessment associated with travel data points other than just financial data points makes credit checking much more superior than in a regular BNPL based solely on financial data. SanKash aggregates all B2B prices in such a way that it is easy to assess any overvaluation or undervaluation, which allows for better risk assessment,” says Akash Dahiya, co-founder of SanKash.
The average ticket size in travel is large
Usually, BNPLs fund smaller retail products ranging from Rs 1,000 to a maximum of Rs 50,000 for a shorter duration (up to 90 days). While an average holiday even for a domestic destination for a family of two exceeds Rs 70,000. Hence, the KYC and assessment requirements for trips become different which a specialist TNPL can meet and can offer a refund up to 36 months term allowing them to spread the cost of bulky tickets, especially international journeys that exceed Rs 1.25 lakh on one way.
Financial buying behavior of travelers differs from other industries
Given the pandemic, many customers want to travel, but pay for it spread over a period of time instead of paying a huge lump sum before the trip. Since the ticket size is large and the booking costs are time sensitive, travelers prefer to book the price at a cheaper fare. This can be made possible by a specialized TNPL who can easily assess price markups against the average cost rather than a generic BNPL.
“Just as a super-specialist can meet the exact needs of a patient compared to a general practitioner, TNPL can provide a more accurate assessment of credit risk and therefore more economical interest rates compared to a generic oriented BNPL to retail,” Dahiya said.