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How Online Travel Agencies Use Virtual Cards to Simplify and Scale Payments

How Online Travel Agencies Use Virtual Cards to Simplify and Scale Payments

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As many online travel agencies (OTAs) know, payment processing can be a complex and inefficient process.

Managing a complex payment flow that involves many different parties including travelers, tourism suppliers, and third-party vendors is no easy task. This process often leads to high operational costs, errors, and cash flow issues.

These inefficiencies get worse when you factor in high transaction volumes, foreign exchange rates, and cancellations, all of which are hard to handle with older payment solutions such as the IATA’s Billing and Settlement Plan.

All of this can be managed quite easily with virtual cards, which help optimize the payment process and increase scalability.

In this guide, we explore how virtual cards solve payment challenges for OTAs.


  • Payment operations can be a major bottleneck in the OTA business model because it involves a “double-loop” payment process. Once a customer makes a payment, the payment then has to be distributed to the tourism supplier(s).
  • This two-sided flow can be hard to manage when you factor in high payment volumes, foreign-exchange fees for international trips, flight cancellations, disputes, and refunds.
  • As OTAs race to handle more customized offerings and add-ons, the complexities in managing the second loop compound quickly because there may be three or more vendors involved in each transaction.
  • Virtual cards solve these challenges by giving OTAs the ability to tie each payment to a unique card, making it easy to reconcile payments happening upstream across their supply chain.
  • Virtual cards also offer OTAs a way to better control spending and open up new revenue streams. An online travel business issuing its own virtual cards can generate about 2% in rebates from each transaction.
  • Best of all, virtual cards are easy to implement. With minimal effort, you can get up and running in as little as two weeks.

How the travel distribution value chain works

Today, tourism suppliers have two main ways of reaching consumers. Either they distribute their products and services directly on owned channels or rely on different intermediaries in order to reach consumers.

Whether it’s in business or leisure travel, the travel distribution value chain can be broken down into a few different buckets:

  • Consumers: people booking travel for leisure and business
  • Tourism Suppliers: transportation and accommodation services providers, such as hotels, short-term rental services, airlines, and car rental companies that fulfill consumer demand
  • Intermediaries: online and offline travel agents/agencies, tour operators, and other entities that facilitate the promotion, purchasing, and packaging of products and services
  • Distribution Platforms: technologies that provide the infrastructure for distribution such as Computer Reservation Systems (CRS) and Global Distribution Systems (GDS)

Most travelers now buy tourism products through intermediaries like third-party websites and online travel agencies.

These intermediaries have become a core part of the value chain by making the buying experience smoother for customers and helping suppliers generate more revenue through services like:

  • seat upgrades,
  • insurance policies,
  • additional baggage allowances,
  • priority boarding, and
  • airport lounge access.
How the online travel value chain works

OTAs deliver this value by building products on top of the underlying distribution platforms. This allows them to curate tourism products from hundreds of suppliers and enable transactions between airlines, hotels, car rental companies, rail services, and bus reservations.

Many popular online travel offerings are bundled in various ways, integrated with many different technologies, and distributed in an array of channels. At any given moment, there may be a constellation of companies involved in what may seem like a single purchase to the consumer.

Lithic customer Gordian Software is a perfect example of this. Their team built an API that integrates roughly two dozen agencies with the sales systems of over 100 airlines to make cross-platform sales of ancillary services a seamless process for all parties.

The problem with the OTA “double-loop” payment process

The downside of having this many parties involved in one transaction is that it often leads to inefficiencies and bottlenecks whenever information or value is exchanged.

Payments are a major bottleneck in the OTA business model because they involve a “double-loop” payment process. Once a customer makes a payment (first loop), the payment is then distributed to the tourism supplier on the other side (second loop).

While it may sound straightforward, this two-sided flow can be hard to manage when you factor in high payment volumes, foreign-exchange fees for international trips, flight cancellations, disputes, and refunds.

The complexity increases when you factor in a global pandemic.

As booking platforms race to handle more customized offerings and add-ons to meet customers’ increased demands, the complexities in managing the second loop compound quickly. Rather than pay a single vendor, there may be three or more vendors attached to each transaction.

The two-sided payment flow in the online travel agency business model

Where legacy payment solutions fall short for OTAs

Historically, payments transferred in this double-loop have been carried out by legacy payment systems like ACH or a system widely used in the airline industry known as the Billing and Settlement Plan (BSP). But these systems have their drawbacks and fail to keep up with the needs of modern OTAs.

Automated Clearing House (ACH)

ACH is a US-based system, which is a limitation when it comes to international travel.

It’s also slow. Many ACH solutions have built-in delays because it requires manual preparation of NACHA files and batch file uploads.

Settlement times also take longer with ACH payments because they are processed by clearing houses at set times throughout the business day. It’s normal for these payments to take up to three business days to be settled.

Some banks also impose limits on how much money can be transferred via ACH payments, which may cause larger transactions to fail.

Bottom line:

  • Limited to US bank accounts
  • Payments are tied to a singular bank account
  • Requires manual preparation and upload
  • Settlement takes 2–3 business days
  • Some banks impose transaction limits

Billing and Settlement Plan (BSP)

BSP is an electronic billing system offered by the International Air Travel Association (IATA) that facilitates the flow of funds between travel agencies and airlines on a scheduled basis.

The system is fairly inflexible and doesn’t scale well for many modern OTAs. This was a big issue during the height of the pandemic when there were mass cancellations and airlines were unable to unwind payments and effectively process refunds.

The BSP system also consolidates all individual payments from numerous travels and trips into lump-sum payments, which can cause issues with reconciliation and makes it harder to track individual transactions if issues arise (e.g., cancellations and refunds).

Another issue with BSP is that it excludes many low-cost carriers that are linchpins in various travel segments including regional travel, smaller airports, and the visiting-friends-and-family (VFF) market.

If you’re a new travel seller, you may need to achieve accreditation with the IATA and establish a line of credit with the settlement service.

These sellers may also be subject to lower remittance holding capacity — a limit on cash flight sales until a travel seller has paid a remittance to the airline.

Bottom line:

  • Makes cancellations and refunds difficult
  • Reconciliation can be challenging
  • Excludes many low-cost carriers
  • May require accreditation with BSP
  • May require a line of credit
  • May have lower remittance holding capacity

Physical Debit and Credit Cards

While physical debit and credit cards have faster settlement times than ACH and BSP, they still have some of the same disadvantages as ACH because the transactions must be tied at the most basic level to a single identifier — the card number.

This makes using cards unwieldy and vulnerable to fraud when millions of dollars are spent through them. Fraud is becoming more and more common in the travel industry: there was a 61% increase from 2018 to 2019 and 28% from 2019 to 2020.

Further, the IATA reports that airlines typically lose 1.2% of their revenue to fraud, amounting to approximately $1 billion per year.

Bottom line:

  • Payments are tied to a singular card number
  • Vulnerable to fraud
  • Settlement takes 2–3 business days
  • Some banks impose transaction limits

How virtual cards help OTAs solve payment challenges

Due to these drawbacks and a broader industry push for choice and personalization, virtual cards have emerged as a preferred payment solution for OTAs.

Virtual cards offer travel companies and airlines many advantages:

  • They are easily controlled by software. Cards can be quickly created and used via API calls. You can make them available for one-time use or reload them for use across multiple transactions.
  • Payments can be scaled and controlled in real-time. You can create as many cards as you want and set spending limits, pause, unpause, and close cards any time you want.
  • Virtual cards make reconciliation a breeze. Unique card numbers can be assigned to specific invoices and transactions and can be easily fed into accounting systems.
  • Virtual cards also open up new revenue streams. You can reap significant returns from card volume. Greater volume translates to potentially greater cost-effectiveness  and net-new revenue.

Bottom line:

  • Easy to create cards and process payments programmatically
  • Offers instant settlement and real-time visibility
  • Automate the reconciliation process
  • Easy to integrate with accounting and ERP systems
  • Option to earn revenue share on each transaction
  • Can be quickly scaled with minimal effort

How Gordian Software uses virtual cards to simplify payments

Our customer Gordian Software uses virtual cards as a key revenue driver for its API-based business.

The company allows OTAs to easily offer ancillaries like extra baggage and seat selection across a broad swath of airlines. When these extras are selected via its API, Gordian creates a virtual card to manage the payment flow for each booking.

The company’s revenue has grown 10X in the past year and they’re now processing 8-figures in annual transaction volume.

If you’re interested in learning more about how virtual cards can help your business, contact us.