History shows that it’s hard to pinpoint the exact moment exchange and trading of goods evolved into a more monetary payment system. The first ever bank notes met with scepticism but were a popular alternative to carrying around large and heavy gold or silver coins. As technology propels us into the future, affecting so many aspects of our everyday lives, is it a surprise that it has now had its effect on payment and currency? Just like those early banknotes digital currency was also met with initial scepticism, but it is a growing and evolving trend working its way into the travel industry…
What is blockchain?
Blockchain (originally block chain) is an ever-growing list of records which are linked and secured using cryptography. It’s a digital ledger or database in which transactions are recorded and processed securely. No-one can access the ledger beyond specified persons or a network of stakeholders.
Every time a transaction takes place it is configured into a block containing the details of the buyer, seller and the transaction. The value is taken from the buyer’s digital wallet with the balance returned to the buyer and shared with the network. This block is then added to a chain, which records all transactions in the central, digital ledger.
Blockchain came about back in 2011 following the arrival of Bitcoin on the scene. The connection is that blockchain technology allows users of Bitcoin (and other digital currencies) to make and receive payments anonymously.
Alternative currencies in the travel industry
Bitcoin was conceived as an international currency, beyond the control of countries or banks that would allow people to pay each other directly. Bitcoin has attracted negative publicity largely due to its popularity amongst criminals and fraudsters.
Although Bitcoin is the best known, there are other multinational or neutral currencies in use across the travel industry. For example, in 1969 the International Monetary Fund created Special Drawing Rights (SDR) as an international reserve asset, which are often used to draw down compensation paid by airlines for damage to baggage, injury or death.
Neutral Units of Construction (NUC) is a notional currency based on a set of exchange rates issued by IATA to record fare calculation information. Similarly, the UIC franc was a virtual currency with an analogous purpose to NUC used by the International Union of Railways before being withdrawn in 2013.
In reality, although there’s no sign that Bitcoin and other crypto currencies will replace real world currencies any time soon, some hotels and airlines do accept Bitcoin as payment.
Applications to business travel
Buyers and sellers do not need to hold digital currency to complete a transaction through blockchain. Instead, depending on whether it is a private or public blockchain, digital currency acts as a token within the process to ensure secure and instant transmission of the payment through the network.
There are several applications of blockchain to business travel. But only time will tell which ones gain any real traction. The most obvious use of blockchain is to simplify today’s over-complicated global commercial payments process.
By reducing the number of stages, and parties, involved, costs can be cut, cashflow improved and fraud eliminated. Blockchain may not eliminate the need for credit cards, but it could become an alternative to the virtual card.
Blockchain technology could allow hotel bills to be settled instantly because systems will know what amenities have been used.
What’s more likely is that blockchain will be used to verify the sending of virtual card numbers to hotels, supporting rather than replacing virtual cards. The need to pay for overseas purchases in local currencies – and the additional cost - would disappear.
Unsurprisingly, the credit card companies are keen to protect their position in the supply chain. Mastercard now offers customers ability to send money over a blockchain rather than by swiping a credit card. IBM already processes payments over its own proprietary blockchain between banks in the South Pacific.
Smart contracting, passport-free travel and other possibilities
Other potential applications of the technology include ‘smart’ contracting. If a contract threshold is achieved, the contract automatically adjusts itself and payments are made when transaction data is received. Block Geeks compares smart contracting technology to a vending machine due to the fact that you essentially “drop a bitcoin into the vending machine (i.e. ledger), and your escrow, driver’s license drops into your account.”
Blockchain could also help to join up the tri-partite transactional relationship between airlines, TMCs and corporates. One ledger would record and verify tickets sold by the airline; pay the fees from the client pays to the TMC and the fares paid by the TMC to the airline.
In reality, blockchain will only affect travel managers through the systems they use. However, travelers could pass through passport control more quickly if IBM succeeds in creating verified identification of individuals through their smart phones. The theory is that if the system knows who you are, you don’t need to carry a passport. In its place would be a digital passport that would reduce the risk of identity fraud and the information being lost or stolen.
Last June the Dubai government partnered with UK start-up ObjectTech to bring blockchain-based security to Dubai Airport by combining biometric verification and blockchain technology and using a “pre-approved and entirely digitized passport” to authorize passengers' entrance into the country.
Should other airports follow suit immigration departments would not be able to access passenger’s personal details but would see confirmation that their details have been verified and matched to the confirmation using facial recognition or other biometrics.
Perception vs reality
There’s a degree of excitement as well as hesitation around Blockchain. Only time will tell which potential business applications will catch on. Like New Distribution Capability (NDC), blockchain is being heralded as the salvation or death knell of the TMC/corporate client relationship. And, as always, history shows that each innovation eventually finds its level of adoption.
Our take on blockchain is that its main impact will be in simplifying digital payment processes. Payments can be made automatically without the traveller becoming involved. For international business travel there will be more transparency around payments involving currency conversions.
Payments for transactions between suppliers, TMCs and their corporate clients will be quicker – and slicker too. In the longer term, the lower-cost digital payments enabled by blockchain could replace corporate and even virtual cards – but we don’t see that happening any time yet.
*This article first appeared on FCM Travel Solutions USA.