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Wharton FinTech PodcastBooking.com SVP of Fintech, Daniel Marovitz - Building a Global Travel Payments Platform
Wharton FinTech PodcastBooking.com SVP of Fintech, Daniel Marovitz - Building a Global Travel Payments Platform
Booking.com SVP of Fintech, Daniel Marovitz - Building a Global Travel Payments Platform
Update: 2024-08-08
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In today’s episode, lead host Djavaneh Bierwirth speaks with Daniel Marovitz, Senior Vice President of Fintech at Booking.com. Daniel shares his journey from studying East Asian languages to leading fintech innovation at one of the world's largest travel e-commerce companies. We explore the complexities of cross-border payments, the evolution of digital payments in the travel industry, and the strategies Booking.com employs to enhance the travel experience.
Timestamps:
0:00 - Introduction
1:27 - Daniel's career journey
7:53 - Challenges of cross-border payments in travel
12:17 - Booking.com's payment innovations
16:58 - Partnering with local payment methods
21:31 - Balancing payment method complexities
29:26 - Evolution of Booking.com's fintech strategies
37:26 - Connected trip concept
38:37 - Build vs. partner decisions in fintech
45:04 - Advice for aspiring fintech entrepreneurs
47:26 - Closing thoughts
Timestamps:
0:00 - Introduction
1:27 - Daniel's career journey
7:53 - Challenges of cross-border payments in travel
12:17 - Booking.com's payment innovations
16:58 - Partnering with local payment methods
21:31 - Balancing payment method complexities
29:26 - Evolution of Booking.com's fintech strategies
37:26 - Connected trip concept
38:37 - Build vs. partner decisions in fintech
45:04 - Advice for aspiring fintech entrepreneurs
47:26 - Closing thoughts
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Transcript
00:00:00
(upbeat music)
00:00:02
Hello listeners and welcome to the Wharton Fintech podcast.
00:00:15
I'm your host, Jabba Beerruth.
00:00:17
Today's guest is Daniel Marovitz.
00:00:20
Daniel is the Senior Vice President of Fintech at Booking.com where he oversees the integration and development of innovative payment solutions within one of the world's largest travel e-commerce companies.
00:00:30
Over the course of his impressive career, Daniel has held pivotal roles in media, banking, and Fintech companies.
00:00:37
Since Daniel took the helm of Booking's Fintech division, the group has more than doubled in headcount and overseen expansion of the pay-by-booking feature to empower over 50% of all transaction volume on the platform.
00:00:49
In today's episode, Daniel and I discuss among other topics.
00:00:53
His unusual background and how he went from being in East Asian Studies major in college to become an expert in the Fintech space.
00:01:00
The unique challenges and opportunities and global e-commerce and travel, the complexities of cross-border payments and how they are being addressed, and how Booking is enhancing the travel experience through innovative Fintech solutions.
00:01:11
We hope you enjoy the recording.
00:01:13
Hi Daniel, it's so great to have you on the podcast with us today.
00:01:16
Just to kick our listeners off, I wanted to do a bit of a deep dive into your background 'cause I feel like you've had quite the so spectacular career over the last three decades, spanning roles in media,
00:01:26
banking and Fintech.
00:01:27
- I didn't know why I feel about three decades, you know, that sounds like too long a time.
00:01:31
- It sounds like you built up quite the expertise.
00:01:33
That's how I would say it.
00:01:34
- There we go, learning experience.
00:01:36
- There you go.
00:01:37
I've noticed that actually if we go back to university, so something that's very top of mind for me, obviously not being back in school, is that you studied something completely different, which is East Asian languages.
00:01:48
And I also saw that you spent some of your early years like working in Japan.
00:01:52
- So I was wondering, like, how did I, aspect of your background actually resurface nowadays, like working in Fintech, does it resurface?
00:02:00
Yeah, I would just love to hear more about that.
00:02:01
- I think the answer has to be not particularly much.
00:02:05
What I would say is that, you know, learning Japanese, and even just living in Japan, navigating Japan, or someone who didn't grow up there, you know, involves a lot of learning,
00:02:16
right?
00:02:17
There are a lot of challenges, and even seemingly simple and familiar things often turn out not to be in Japan.
00:02:24
I don't know if you've been there before, but it's kind of one of the most, you know, deeply different places in the world.
00:02:31
And so, you know, what I would say is it forces constant learning to keep your brain fresh.
00:02:36
And I think in Fintech, you know, this is a space which has changed it all the time, right?
00:02:41
You know, there are surprises.
00:02:42
There's lots of innovation.
00:02:44
There seems like every three to four years, there's kind of another wave of completely different technical approaches and products.
00:02:50
And you have to stay fresh, right?
00:02:52
And keep learning and keep studying.
00:02:54
And I think, you know, as a student of Japanese and a student of Japan, you're kind of forced there.
00:02:57
So, let's say maybe from a mindset perspective, it's set me up early for a life and a career of kind of non-stop study, which is something that I'd hear to, you know, religiously as study,
00:03:08
formally study every single day, seven days a week to 365.
00:03:12
- That's awesome.
00:03:13
Yeah, and it sounds also a bit like, it gives you a sense of a humility that things will always be maybe not quite within your grasp 100% that you have to kind of pushing yourself to understand different concepts,
00:03:23
different changing ideas.
00:03:25
And I find that like with the Fintech space in particular, a lot of people that have met that have gotten really interested in the space and now working there, find themselves there because they are actually quite intrigued by this degree of complexity,
00:03:37
like to your point, like you're always learning.
00:03:39
But also because this complexity is kind of baffling within Fintech that you say, how is it that some of the processes that in their simplest and most analog form are really quite simple,
00:03:49
like they're essentially thinking of a payment as just an exchange of a form of payment between two parties.
00:03:56
But we have introduced all these sorts of constraints and time variants over time with digitization with like now the internet, et cetera.
00:04:04
So I guess one does a sentiment resonate with you, this like appeal of the complexity.
00:04:10
And if so, or if not, how has the industry like kept you interested all these years?
00:04:16
- Yeah, I mean, so look, I would say this is definitely a space for nerds, no question, right?
00:04:21
I don't think you can enter the Fintech space without a fairly proud nerd badge on your shoulder.
00:04:28
I think what you say is exactly right.
00:04:30
It's kind of one of the great paradoxes of Fintech and specifically the kind of payments area of Fintech, you know, understanding that there's quite a tech and insure tech and reg tech and all sorts of things within the Fintech manner.
00:04:44
But in the payment space, you know, on the surface everybody pays every single day, right?
00:04:50
It's something that everybody does all the time and it's seen so obvious.
00:04:55
And you know, what I find interesting is that even if you ask a very educated person who maybe doesn't touch Fintech and maybe doesn't even touch kind of finance, but you know,
00:05:06
somebody who's a lawyer or a medical doctor and you ask them how their debit card works.
00:05:12
The chances of them being able to explain it or being able to explain how the credit card system works, its chances of them to explain it is probably zero.
00:05:20
And it's something that, you know, affects that one of the most precious things they have, which is their money, which fuels their life and protects them and you know, is that sort of catalyst for all the things they do every single day.
00:05:33
And there's all this trust in this kind of piece of plastic or this little image on their iPhone and they actually have no idea how it works.
00:05:41
And so I find that fascinating.
00:05:42
You know, I also find just having, I've had the enormous privilege of basically not spending more than about two years of my work in career and not on the web.
00:05:53
So I started, you know, in the very early days, like kind of in 1995, I started working on the web.
00:06:00
So, you know, sort of as long as the web has been there, I've been building e-commerce things.
00:06:05
And you know, what's true is that the legal systems of the planet still 30 years later are just not really designed for the notion that individual consumers are going to do cross-border transactions.
00:06:19
You know, there are these kind of commercial trade frameworks which have existed to allow like governments to trade or for, you know, for Toyota to ship cars, you know,
00:06:29
to the UK, that kind of exists as a structure on those systems of laws and processes and procedures to do it.
00:06:37
But the world still hasn't really quite grappled with the fact that a kid in Texas pays $5 to a South Korean, you know, online gaming, you know, company to take immediate delivery of access to a virtual reality gaming environment,
00:06:53
right?
00:06:53
And, you know, payments and foreign exchange and contract law, it's actually all quite great.
00:07:00
You know, there are a few notable exceptions like, you know, within the European Union, you now have, you know, currency and not in all cases, but in many cases currency, which is common across,
00:07:10
you know, EU member states.
00:07:11
And there are rules that now govern, you know, it's pretty easy between staying in France or the Netherlands and Germany to do stuff.
00:07:18
But, you know, between the US and the UK, it's still pretty murky.
00:07:21
Let alone, you know, Luxembourg and Ethiopia, right?
00:07:25
And so I think that's one of the things that's fascinating is that the systems of payment, the governmental structures, the legal structures, the way banks operate and the way consumers and businesses vary organically want to operate,
00:07:37
particularly with, you know, digital content, you know, streaming and video games and podcasts.
00:07:43
The world just isn't set up to support it, right?
00:07:45
And so lots of payments stuff is a way to find a solution in a space where the environment isn't caught up with experience.
00:07:53
Right.
00:07:54
And, I mean, it's interesting because cross-border payments, just by itself, if for any e-commerce business, is already one of the most complex parts of the stage.
00:08:03
But add on to that the fact that you are a travel business operating in dozens of countries.
00:08:08
All of a sudden, that's essentially, like, the cross-border complexity on steroids.
00:08:12
So-- - Yeah, I mean, I kind of describe, you know, booking.com, again, from the sort of nerdy fintech perspective, right?
00:08:18
The purpose of booking.com is to send people, give people access to go places where their cards don't work, right, or whether I'm sure what that payment method is,
00:08:30
you know.
00:08:31
And so, yeah, I mean, booking is doing business in nearly every single country in the world, except for, you know, a short list of countries, which are kind of subject to sanctions of some kind or another.
00:08:41
But we really operate everywhere else.
00:08:43
And yeah, it's very, you know, we don't do payments in all of them, and some we work in kind of what we refer to as the agency model, you know, which, in some ways, is representative of the problem, right?
00:08:53
So, there are a number of countries where, you know, we don't get involved in taking the payment.
00:08:58
We don't charge the traveler and pay the hotel.
00:09:01
We actually establish a reservation.
00:09:04
And then the traveler, when they get to the hotel, they have to find a way to pay the hotel, you know.
00:09:10
We don't like that for lots of reasons, because it's not a great experience for the traveler.
00:09:15
You know, they're subject to a lot of potential risk, but also, you know, just complexity and uncertainty.
00:09:22
And we just think, you know, from a macro perspective, right?
00:09:24
We say that our job is to help people experience the world.
00:09:28
Part of experience in the world should be to make that experience is going around the world, you know, easier, faster, cheaper, better.
00:09:35
And if we can't take the payment, then we know there's a miss.
00:09:38
But remember, booking our commas, running a two-sided marketplace.
00:09:41
So, we also have the partner side, right?
00:09:43
So, I've spoken to Hotelier, for example, in Kenya, you know, she sent to me, who is General Manager of her kind of, you know, very catchy by Star Hotel in Nairobi.
00:09:55
And she sent to me, you know, the worst experience that you can have as a hotelier.
00:09:59
Literally, the worst thing is when you have a guest, who's a frequent guest, you know, you know, their name, you know, they recognize you, you recognize them.
00:10:07
And you have to say to them, you know, I'm sorry, Mrs.
00:10:10
Johnson, but your card didn't go through.
00:10:12
Do you think you have another means of payment, right?
00:10:14
It's so embarrassing and terrible.
00:10:16
You never want to be there from the perspective of the hotelier.
00:10:20
And of course, as a guest, you know, that's super embarrassing and terrible, right?
00:10:23
So, it's very tricky.
00:10:25
But, you know, we do manage payments in many, many of the countries across the world.
00:10:29
You know, we see that we're able to do all sorts of things, which are really beneficial for both sides of the marketplace.
00:10:34
So, one thing that we do is whenever...
00:10:37
So, we don't really market it this way, but we refer to it internally as PBB payments by booking.
00:10:43
In a payments by booking transaction, the hotel is protected from fraud and chargebacks.
00:10:48
So, that's just kind of part of the proposition.
00:10:50
If we're going to charge the guest and remit the funds to the hotel, then we offer kind of as a core part of that product that fraud and chargebacks are on us and not on the hotel.
00:11:02
And, you know, and that's a big deal, right?
00:11:03
Because fraud and chargebacks from the perspective of a hotel, there are two components that are difficult.
00:11:09
One, obviously, is that, you know, if you're subject to fraud, you can lose money.
00:11:13
That's super obvious.
00:11:14
But the second part is that, you know, even if you have a chargeback and, you know, for your listeners who may not know a chargeback is when somebody says, you know, I didn't receive the service that I expected and I'm not paying the bill,
00:11:25
right?
00:11:25
That's a chargeback, right?
00:11:26
You call your credit card company or you bank and you charge it back.
00:11:30
Sometimes, chargebacks are also a form of fraud, right?
00:11:32
Sometimes somebody says, well, I'm not paying because, you know, my room didn't have a jacuzzi and that's what I thought it had, right?
00:11:39
Or whatever it is, but they stayed somewhere for 10 days.
00:11:42
In order for a hotel to fight the chargeback, not only is it potentially expensive, you know, if the chargeback kind of sticks, but the second is it's operationally really complicated.
00:11:52
You have to mount what's referred to as a chargeback defense, which essentially is just what it sounds, right?
00:11:57
You have to provide a bunch of evidence to prove that you delivered the service and that the person is inappropriately charging back.
00:12:04
Even if you win, it means that a hotel has to put somebody, you know, for a couple of hours to fill out tons of paperwork.
00:12:12
And so that's what our things we do to try to protect the suppliers that are on our marketplace.
00:12:17
- Can I ask the follow-up question on that?
00:12:18
'Cause I think it's actually a super interesting model.
00:12:20
'Cause in the sense you're saying, we have two things that we can do.
00:12:23
One, we can aggregate all these chargeback requests as much easier for us to do it because you build sort of a center of expertise around it.
00:12:29
But the other way is that you say, it's essentially in simple terms, it's an insurance product like for the merchants or for the hotel years essentially.
00:12:37
And looking at a homicide, I guess like, how do you structure it internally?
00:12:41
Is it more that you say we can go after those callbacks when it isn't like a valid charge or do you structure it more?
00:12:47
It's saying, okay, there is a degree to which we're essentially just normalizing your risk.
00:12:52
And therefore we price it almost like a tiny like insurance product on top of whatever your bookings are.
00:12:57
- I mean, obviously from a legal, I understand what you say.
00:13:00
I'm a legal respect to definitely not an insurance product, but like obviously I understand your point.
00:13:04
That is, you know, it's a service at the hotel, you know, sort of implicitly buys when they accept us as the payments, you know, kind of fronting the payments for them.
00:13:13
You know, there are a lot of things we can do.
00:13:14
And the first thing is that in almost everything related to payments, but particularly things related to fraud, and actually not just in payments fraud, although you could argue metaphysically that any fraud on the internet ultimately is some form of payments fraud rights.
00:13:28
People who want to make money.
00:13:30
The part that's almost always true in the payments world, whether it's trying to improve authorization rates or making user interface or user experience changes to try to make sure that you offer relevant payment methods to a user so that they can believe the transaction.
00:13:46
We can talk about some of that stuff in a second.
00:13:48
You know, in all those cases, volume is your front, right?
00:13:52
So the more you see, the more you're able to build data models, you know, the better you are to predict, the better you are to defend.
00:14:00
And so those are really important.
00:14:01
So a lot of the things that we do across booking are trying to use this scale that we have to try to protect the ecosystem.
00:14:08
You know, it's expensive from a technology perspective.
00:14:11
It's expensive from a human resource perspective to get people who kind of have that expertise to invest in machine learning and data science and now increasingly, you know, AI models.
00:14:22
Those people are expensive and those processes are expensive.
00:14:24
And even the, you know, particularly in the AI case, you know, even the compute time can be expensive.
00:14:30
And so it's one of the benefits of a scale business, right, is that we're able to do those things more efficiently.
00:14:35
You know, if you are, you know, and there are hundreds and hundreds of thousands of these, right, of small hotels, you know, it's a family business, you know, mom runs the book, stat runs front of house,
00:14:45
you know, the kids are, you know, working in the barn, the restaurant, you know, those exist, you know, all over the place, particularly probably across Europe, more so these days than in the US.
00:14:54
They don't know anything about, you know, fraud and chargebacks.
00:14:57
They know how to run a wonderful hotel, right?
00:15:00
And so, from another perspective, I think, if you think about what is the purpose of booking.com, you know, why do we exist as a business, you know, from the side of the traveler, I think it's easy, right?
00:15:10
From the side of the traveler, this is, you know, a simple connection in your pocket.
00:15:14
You've got an app that lets you access a world of hospitality content and a few clicks, purchase something with a user experience that's cheap and easy and simple and comfortable and familiar.
00:15:26
From the purpose of the partners, we refer to it, the suppliers, you know, whether it's hotels or rental car companies or pre-book taxi companies, et cetera, that we contract with.
00:15:35
You know, what we increasingly want to do as a strategy is to step in to kind of take the administrative burden and FinTech, you know, let's say payments and related products are a big source of that burden because they're specialized in complex.
00:15:50
- Take that burden away from the hotel, right?
00:15:52
So we love the hotel to focus on running a cool bar, you know, having a beautiful lobby, taking great care of guests, you know, keeping the place clean, getting people advice about what things to do locally and that's where they can spend their energy and this sort of administrative wrapper,
00:16:09
a lot of which is, you know, maybe not the most fun part of running a hotel and specialized and hard to do with scale if you're a small property, that's something that you can give to booking.com and outsource to us.
00:16:20
- That makes a lot of sense.
00:16:21
And I guess on that note, it sounds like, again, especially from the partner side, there's a lot of opportunity to kind of fill that gap that maybe even traditional financial services currently cannot,
00:16:31
whether that's, because it's a very small property, they don't have the right data, that you can now fill in with sort of having both the tools, whether that's AI or otherwise,
00:16:41
but also just the expertise in the industry.
00:16:43
If you were to look at it from the partner side, like what are some of the greatest pain points that still remain today?
00:16:48
And like features that maybe they're on the roadmap, maybe they're on the vision board, that booking would love to build that are sort of on the dream list of services to still provide.
00:16:59
- Sure, so maybe I'll start with something which on the surface may be sort of boring and basic, but actually is a really big deal and an increasingly big deal.
00:17:08
And so I think I would be remiss not to just bring it up.
00:17:11
And something that we do today, quite big scale.
00:17:13
- So, and I think just as a general intake topic, it's a really interesting one, which is, you know, what to refer to as 8 p.m.s or LPMs, alternative payment methods or local payment methods.
00:17:24
Basically, ways to pay which are not cash and which are not credit cards from big credit card companies.
00:17:30
And, you know, some of those methods themselves are massive, great.
00:17:32
So an monopoly pay or a wechat pay from China, a paypal in some parts of Europe and the US, some of the buy-out pay later structures, like a firm or after pay or car nuts.
00:17:43
There was a bit of a sense in the industry that because, you know, these are master and MX and maybe Chinese, Indian pay, JCB out of Japan.
00:17:53
Because they'd existed already for decades and already served a kind of cross border purpose, right?
00:17:59
An American traveler going to Europe would take a visa card.
00:18:01
Now, you know, they might have trouble in some places, some places might not accept it.
00:18:06
They might have trouble getting money out of a ATM, either out of a cash machine in various countries.
00:18:11
But, you know, it kind of works, right?
00:18:12
Even 15, 20 years ago.
00:18:14
And because those, you know, card schemes had a jump, if you will, on this international footprint.
00:18:21
There was sort of a sense in the industry that, you know, they were just increasingly figure out the e-commerce world and as mobile started the mobile world.
00:18:30
And we would end up with kind of versions of visa master, MX, et cetera, and that would dominate.
00:18:35
And it's both fabulously true and fabulously not true.
00:18:39
Now, explain what I mean.
00:18:40
So from one perspective, if you take a look at devolumes from the major card schemes over the last 15, 20 years, they have been growing and growing and growing.
00:18:48
They continue to grow every day.
00:18:50
And, you know, most of those companies financially have also done really well, right?
00:18:53
Go pull up the stock prices of those companies, and you'll see that these have been successful businesses recognized by the markets.
00:19:01
On the other hand, the part that's quite interesting is that in terms of the percentage of payments volume that those companies do, it's actually decreasing every single day.
00:19:12
So because the overall pie is increasing, the fact that their share is decreasing isn't as obvious.
00:19:18
But both of those things are true.
00:19:20
Their share is decreasing and their absolute buying is increasing.
00:19:23
And so the question then is like, well, what's feeling to gap?
00:19:26
And what's feeling to gap are, you know, the last time I checked there was something like a thousand payment methods in the world.
00:19:33
So why do I give you this whole story?
00:19:35
So if you think about, if you have a payment offering which is driven by the payment methods offered by a partner, offered by a hotel,
00:19:45
what that means is that as a booker, as a traveler, if I in a city and I searched through a hundred different hotels, it's possible that each of those hotels would offer a different way to pay,
00:19:57
right?
00:19:57
So it's a super-table experience from a consumer.
00:20:00
They want to be able to pay the way they want to pay anywhere they go.
00:20:04
They don't want to be subject to the vagaries of what a specific hotel has decided to offer and invest and integrate or not.
00:20:11
And so that's something that we're able to do.
00:20:13
Again, it's about soothing out that experience, de-risking experience, making it more comfortable.
00:20:18
You know, if you are, you know, in Booking.com is hate quarter in the Netherlands.
00:20:22
So I always use this example.
00:20:24
The Netherlands has a bank-based payment method called ideal.
00:20:28
And it dominates e-commerce and the Netherlands, right?
00:20:32
People don't use credit cards to buy stuff online in the Netherlands, they use ideal, which is an immediate bank debit structure, but it doesn't have a card.
00:20:41
Essentially, what happens is you go to make a purchase and when you check out, you select your bank.
00:20:47
You have all the bank logos of the local Dutch banks.
00:20:50
You select your bank.
00:20:51
You get a pop-up.
00:20:53
When you log into your bank account, you approve the charge in your bank and it immediately shows up in the e-commerce site that your run says, "Hey, approved by Robo Bank or ABN Amaro or whatever your bank was."
00:21:04
So for a Dutch person, that's the most comfortable thing in the world.
00:21:07
They trust it completely.
00:21:08
It's existed for 20 years.
00:21:10
It's nearly free for merchants, interestingly.
00:21:13
So it's radically different than the high interchange that credit cards charge.
00:21:17
It's an instantaneous payment, very comfortable.
00:21:20
So for a Dutch person going to the US, no American hotels ever heard of that, but we can offer that service.
00:21:26
So a Dutch person can pay the way they're used to and that American hotel can get paid the way they're used to.
00:21:31
- So let me ask you this as a follow-up, 'cause it sounds like there's obviously a couple of different archetypes of payment methods that are starting to grow.
00:21:37
You have your traditional cards, card networks, visa master cards, et cetera.
00:21:42
You're starting to see more of that like install and pay.
00:21:44
That's the buy now pay later.
00:21:46
You have the QR code-based ones and then you have the probably grouped in with like the accounts account ones, like your ideal or like your bips, et cetera of Europe.
00:21:54
It sounds like what you're doing is you're saying, "Hey, look, like because we can accept all of them, we'll serve as this seamless intermediary.
00:22:01
Like you pay me with card, I pay you with ideal, whatever and the combination ends up being."
00:22:07
But to me, when I think about that, that creates sort of two things.
00:22:09
Like one, to your point, there's very different like fee structures associated with different payment methods.
00:22:15
- Absolutely.
00:22:16
- That's the first sort of part of the balancing problem.
00:22:19
And then the second one, I imagine it obviously just creates sort of like a time conflict because maybe the settlement on one side takes longer, maybe on the other side is instantaneous.
00:22:28
So on the booking side, like how do you navigate both of those complexities in a way that doesn't create like excess risk for the business?
00:22:34
- Yeah, no, that's a great question.
00:22:36
I mean, the first thing I would say is it's part of what we try to do, from a macro conceptual perspective, right?
00:22:42
If you think about part of the objective or fintech, what I always think about is that bookers and partners have almost diametrically opposed objectives,
00:22:52
right?
00:22:53
So a supplier in the hospitality space is looking for certainty.
00:22:57
They would love, let's talk about just hotels to keep it simple, like ignore some of the other products.
00:23:02
So a hotel, you know, if they had their druthers in all situations, everything would be non-refundable, right?
00:23:10
They would love to not have cancellations, no operational complexity, no unsold loans, highest possible yield, right?
00:23:17
That's what they want.
00:23:18
They want to maximize price, they want to minimize flexibility, and they want to get paid immediately.
00:23:24
If you think about what does a traveler want, they want to be exact opposite.
00:23:28
They want the maximum flexibility to cancel whenever they can.
00:23:31
They want to pay however they want.
00:23:33
They want to pay after they stay, not before this day.
00:23:36
And so, you know, you can look at that from two perspectives.
00:23:39
On the one hand, like that's massive friction in the marketplace.
00:23:42
On the other hand, that's kind of our job at booking is to insulate both sides of the marketplace from the others, you know, hang ups.
00:23:51
That's kind of part of how we think about it is that, you know, those places where the objectives or the agendas of either side of the marketplace are an opposition.
00:24:00
That's an opportunity for us to remove friction.
00:24:03
And frankly, it's an opportunity for us to make money, right?
00:24:06
It's an opportunity for, you know, there's a kind of implicit spread in those distinct objectives.
00:24:12
So that's the first thing.
00:24:14
The second thing is, you know, again, this is a question of scale, right?
00:24:17
Which is that we're able to build models and structures to deal with some of those risks.
00:24:21
For example, differential settlement cycles or easier, harder mechanisms for the unhappy path for a failed payment or insufficient funds or a return or cancellation structure,
00:24:35
you know, those can be very difficult.
00:24:37
And there've been a few cases where we're working with an alternative payment method, which is a kind of instantaneous payment, instantaneous debit, whether it's coming from bank account or some sort of stored value wallet,
00:24:48
where there really is no refund structure, right?
00:24:52
Some of these methods don't happen.
00:24:54
It's like, you do it, it's done, it's gone, too bad, so sad.
00:24:57
That's how it works, right?
00:24:58
And so we're actually able to step in and create a refund path around a method which doesn't have one.
00:25:05
You know, of course, it adds cost, it adds complexity, but what we do as a matter of course, and this isn't just a fintech thing, this is something which, you know, at least in some circles, I think booking is very famous for,
00:25:17
you know, we are deep, deep, deep into AB testing, right?
00:25:21
So, you know, we conduct more than 1,000 experiments a week across the company, more than 1,000 experiments a week of all different flavors, right?
00:25:30
They can be, you know, really trivial, where we're changing just one word, you know, in a description and seeing if it drives, you know, a higher click rate or a higher conversion,
00:25:40
to very substantial experiments, which are very expensive to run.
00:25:44
So, for example, we sometimes run in the fintech space, we run what a refer to as blackout experiments.
00:25:51
So, what we do is we take a payment method that we know is very common in some market, and we just remove it for some percentage of traffic, to see what happens,
00:26:01
it's the only way that you can actually isolate what the effect of having that payment is or isn't.
00:26:07
Now, the problem, of course, is if you run a blackout experiment, and those are in the experimental cohort, if the conversion through the sales funnel, let's say, drops by 3%,
00:26:17
that's potentially business you've just lost.
00:26:20
And, you know, that can turn into a bill that's millions of dollars.
00:26:25
And so, we build budgets to be able to support tests, because it helps us make other choices, right?
00:26:30
Is it worth having this payment method?
00:26:32
You know, how should we try to order the drop-down menu for selection?
00:26:38
You know, is it something that we want to incentivize or disincentivize the use of?
00:26:42
You know, and sometimes there are complexities that are implicit in that structure, right?
00:26:46
So, it can be that conversion improves with this payment method, but what you said a moment ago, the cost of different payment methods can be radically different, right?
00:26:55
So, you know, there are some high-loyalty cards, you know, in Latin America, which carry a 400 basis point charge,
00:27:05
you know, to the merchant, right?
00:27:06
Versus a bank-based payment method, which might be, you know, 10 basis points, right?
00:27:11
So, it's, you know, orders of magnitude, distinction and cost.
00:27:15
And so, the question is, well, what are you getting for that, right?
00:27:18
Is it worth it?
00:27:19
You know, is the availability of this super rich loyalty card, which carries all these benefits?
00:27:25
Of course, those benefits are almost always paid for mostly by the merchant, right?
00:27:30
So, is it worth offering that method because, you know, and often what the card scheme will say, they'll come to you with lots of research that says, you know, our card, you know, it's a high-end traveler,
00:27:41
they spend 50% more per trip.
00:27:43
They travel three times more frequently than the average cohort, you know, in this country.
00:27:49
And of course, that sounds great.
00:27:50
But if you're losing, you know, 35% of your revenue disappears, you know, into payments charge.
00:27:57
You know, you're certainly not winning on margin, but you might be winning on margin dollars.
00:28:02
But you're not winning on margin percentage, but you might be winning on margin dollars.
00:28:06
So, all of those calculations, kind of all that testing, all that math, that's like a, you know, this is the sort of stock and trade of what we do.
00:28:14
And I think, you know, for a little bit to some of your first comments, right?
00:28:18
So, you know, the average person thinking about payments is like, okay, you stick the card in, you pay the thing, if I had seen so.
00:28:25
- Travel.
00:28:26
- Right.
00:28:27
It's like, okay, you know, like how much is there?
00:28:29
And actually, you kind of get through the layers of this, and it kind of gets deeper and deeper and deeper.
00:28:34
And because, you know, payment methods can be, you know, to put it in simplistic trends, right?
00:28:38
They can be very expensive or very cheap.
00:28:41
You know, making good choices about methods which are useful to attract a new cohort of buyer, to maintain the loyalty of a certain cohort of buyer,
00:28:52
to increase the average order size because it's true.
00:28:55
You know, we have been able to mathematically prove their experimentation that there are certain payment methods which are connected to travelers who have a higher average order size and have a longer length of stay and less propensity to cancel.
00:29:09
So, there's real economic benefit in having that group in our marketplace.
00:29:15
But you just have to accept that, you know, it's not a free launch, right?
00:29:19
In order to get all those powerful additional benefits, you'd give up margin per transaction because so much goes into the method.
00:29:26
- Right, like it really takes you away from a transaction-based model to more of a, almost like CLV-based.
00:29:31
Like, what is this customer actually worth to me in the long run?
00:29:34
- Yeah, I would say that's one of the things as a company, I think we've come a long way.
00:29:39
You know, so when I joined booking six and a half years ago, we were already very, very experiment-based, you know, I guess somebody even argued that we were purely, purely,
00:29:50
you know, religiously affiliated with sort of experimentation, data-driven, you know, data-only decision-making, right?
00:29:57
No intuition, exclusively database decision-making was kind of the mantra of the company.
00:30:02
But what we didn't do particularly well, and you could argue when I first got there, we didn't do at all, was think about any customer lifetime value.
00:30:10
We only thought about in-session value, right?
00:30:14
So our kind of, you know, dandered flow was, we pay for a Google ad, that Google ad lands somebody on the booking app for the booking website,
00:30:26
and then we measure how we get them through the funnel in that specific session, right?
00:30:31
So everything was a kind of session-specific analysis.
00:30:35
We didn't pay any attention to whether we'd seen that customer before.
00:30:39
We just paid attention to the fact that we see this customer today.
00:30:42
We paid, you know, $1.50 to Google to get them here, and they're converting at some rate, and the value, the commission value of the booking that they make is worth X.
00:30:56
And that was our kind of exclusive framework for analysis.
00:31:00
We didn't pay attention really to loyalty or lifetime value at all.
00:31:04
And so, you know, there's a kind of a beautiful, brutal simplicity about only thinking about an in-session experience, but it also means that you can make bad choices.
00:31:14
- Right, you know, you lose some of that complexity there, I guess the overall journey.
00:31:19
But I think what's really interesting to me is, I was reading some of the figures from when the Fintech Unit first launched, and you mentioned the product earlier with the pay-by-bookings product initially, was maybe like 20% within the first year or two.
00:31:31
And now, I believe it's gone up to over 50% of like, when it comes to volume.
00:31:36
And I think actually owning that payment piece opens up such a beautiful connection with the loyalty piece because you actually have so much more flexibility to offer the consumer-backed benefits that you can now offer as a result of having this visibility into their lifetime value or their continued usage of the product.
00:31:55
So we would love to hear kind of, how you think about that today, and like what's still on the frontier, say for two, three, four years from now on the consumer side of how you integrate the pay features.
00:32:05
- Yeah, I'll give you a little bit of a sort of strategy there.
00:32:08
So you're absolutely right.
00:32:09
I think, you know, it's not accidental that in many ways the most successful, you know, travel loyalty program in the world historically is American Express.
00:32:20
It's not accidental that that program is connected to a method of payment.
00:32:26
Now we all accept it because we kind of grew up with it and it seems natural, but if you think about it, it's actually very odd.
00:32:33
If you think about it, why should it be that a company has built this, and it's of course a very difficult thing to build?
00:32:41
Why should it be that a company has built a fantastic universe of hotels and flights and tours and restaurants and all this stuff and it's only accessible if you pay a certain way,
00:32:54
right?
00:32:54
Shouldn't it be accessible if you pay anyway you want to pay?
00:32:58
'Cause there are other ways to monetize the availability of this network and the loyalty and rewards that are connected to it.
00:33:04
So I think if you project forward, right?
00:33:07
You know, we have a program called Genius, which is a kind of booking loyalty program.
00:33:13
It's been a fantastically powerful program for many years, but I think it's also fair to say it was very simple, right?
00:33:20
It was a very simplistic program.
00:33:23
It did not have any of the attributes that you would probably ordinarily think about in a travel rewards program with a hotel chain or with an airline, which is kind of,
00:33:33
you know, this kind of points system, right?
00:33:35
This alternative currency based structure, which we could do a whole nother podcast about how American Express and American Airlines 50 years ago and invented cryptocurrency of a sort,
00:33:46
maybe not driven by blockchain, but certainly an alternative currency universe.
00:33:50
You know, I think our system was very simple, right?
00:33:53
It was basically just dependent on how many bookings you made with us and then you did that, you moved up the tiers.
00:33:58
And as you moved up the tiers, you got access to pools that discounted inventory.
00:34:03
Civil program not as sophisticated as many other parts of the travel ecosystem, but it's been really with driven great value for hotels, with driven great value for travelers.
00:34:12
And it's been, you know, very good for us as a company.
00:34:15
I think what is clear is that there's a lot more we can do with loyalty and there are a lot more benefits and values that we can bring to our loyal customers beyond just access to discounted inventory.
00:34:29
And it's clear that the FinTech world is a great source to mine for things that are useful.
00:34:35
So I'll give you some of the things that we're thinking about, which are quite obvious.
00:34:40
You know, we're increasingly working in foreign exchange, giving travelers the ability to pay in your own currency.
00:34:46
Used to be on booking.com, you know, even just a few years ago that if you're an American traveler coming to the United Kingdom, you were gonna get charged in GBP,
00:34:57
in pounds, even if your card was a US dollar card.
00:35:00
Now, in today's credit card world, you know, the likelihood that that transaction works well is very, very high.
00:35:07
So you're not gonna have a hard time paying the bill.
00:35:09
The problem is that depending on your issuing bank in the United States, you could be subject to a terrible foreign exchange rate and/or cross-floor fees for every transaction that you do that's not in the currency of your bank account,
00:35:23
right?
00:35:24
So, you know, you could do a 10 pound charge and you could get charged a terrible FX rate to cover the dollars necessary to cover your 10 pounds plus five dollars per transaction because it's a foreign transaction,
00:35:37
right?
00:35:38
So we want to protect brokers from that experience.
00:35:41
It's a largely experienced, it creates bad feeling between the traveler and us.
00:35:45
So, you know, that was a lot of the reasons for why we wanted to solve this problem.
00:35:49
We also feel that, you know, part of our kind of brand USP is we make your travel experience, you know, more transparent, less anxiety dealt, and hopefully a good value.
00:36:00
And so we've kind of stepped into that space.
00:36:02
Booking.com is, you know, is a service that most people historically use before they travel.
00:36:10
So, you know, people use it very intensely, you know, if you're traveling with a spouse or traveling with friends, you kind of go back and forth a million times looking at different properties, sending each other links, right?
00:36:20
It's a very kind of intensive process because, you know, travel is a relatively expensive category of e-commerce, you know, it's not 60 bucks for a pair of Nike's, people are spending a lot more money.
00:36:30
And people also travel, you know, a couple three times a year.
00:36:33
It's not nearly as frequent as, you know, buying a new lightning cable on Amazon, right?
00:36:38
And so, you know, it's kind of a high intensity, high emotional content purchase, which is great.
00:36:44
That's a nice thing for a brand.
00:36:45
But once you go on your trip, you kind of forget about us, historically, right?
00:36:50
You use us to book the hotel, maybe now over the last couple years, you book, you use us to book the flight and cars as well.
00:36:57
But it's kind of a pre-trip experience rather than an in-trip experience.
00:37:02
So, having the car connected to the ability to spend and be protected from foreign exchange fees with a booking brand and experience is great, because it means that as you go through your day and you're in Rome and you buy a couple of espresso's and you buy some tickets from the museum and you buy pizza for lunch,
00:37:19
you know, booking.com both physically and also just in the brand space as part of your day.
00:37:24
And we think that's really, you know, really lovely.
00:37:27
- I guess it kind of bookends really this idea that you've mentioned quite a few times in recent years of this like connected trip.
00:37:32
Like it's truly connected, like end to end.
00:37:34
- Correct.
00:37:35
- Sorry, but all the way to the end.
00:37:36
- Yeah, and we don't bargain it this way, but we don't talk about it so much in this way, but I think the connected trip, you know, the glue that connects the pieces of the connected trip is tentac.
00:37:47
- It's payments, yeah.
00:37:48
- Yeah, it is.
00:37:49
- Absolutely.
00:37:50
- Yeah, for sure.
00:37:51
I mean, I totally see it as well, just so I just think about the end-ten experience, the trip.
00:37:55
So I think the next thing I wanted to talk about, and a lot of what we discussed in the last like 20, 30 minutes or so, what came up is this idea of either working with a partner in certain aspects of tentac or building things in-house.
00:38:08
And there are so many points, especially considering how broadly involved in different parts of tentac.
00:38:13
Pogina Kameh is, to make that strategic choice, do we work with a partner or do we go and build this in-house?
00:38:21
So we would love to bet you understand just how you think about this internally, and maybe even via like two or three examples where you had to make the decision, we went with my partner in this one, versus we decided to build this in-house,
00:38:33
'cause that's an area of expertise we're really trying to foster.
00:38:36
Yeah, I've got a couple of really clear answers for you.
00:38:39
So I would say, from a macro perspective, my sense is having worked in tentac for years, and worked in banking for years as well.
00:38:49
The financial world, the payments world, is so big.
00:38:54
Hoping is a fortune-hard budget company.
00:38:57
But even when 100%, if we ever got to that point, that 100% of everything that we do in every market with all of our brands was going through some form of payments,
00:39:07
we would still be a tiny, tiny little micro dot in the financial world.
00:39:13
The payments world is the only industry on earth that measures annual turnover into quadrillions, the thousands of trillions, right?
00:39:21
It's many multiples of GDP, because GDP cycles through the system as payments, right?
00:39:27
And so, if you think about that, you have to be pretty arrogant no matter who you are, to think that there are all that many places that are appropriate for you to build.
00:39:37
I think our view and the way when I first came in, which was pretty anathema to bookings, kind of product and engineering culture, but when I arrived, one of the things I said is we were kind of forming the group,
00:39:47
is we are going to be fabulous integrators.
00:39:50
We're going to be less focused on building.
00:39:52
We're going to be fabulous integrators.
00:39:54
Our job is to recognize a little bit to the start of our conversation, right?
00:39:58
The world is a patchwork of laws, and a patchwork of currencies, and a patchwork of tax structures, and all the stuff, which is complex.
00:40:06
What we need to do is to kind of sew together services, data sources, software that covers the needs that we have in many different product areas in many different geographies,
00:40:18
and do so in a way, which is as seamless and friction-free as possible for both sides of the marketplace.
00:40:24
But we don't need to own much of that, because I want to maintain a kind of best of breed mindset, which says, hey, we can start down the path of one supplier, and then there's somebody new,
00:40:34
three years or now, and we can kind of take out the first guys and put in somebody else, because it's cheaper, faster, better, more innovative.
00:40:42
And so I think you want that kind of learner mindset and that innovation mindset.
00:40:47
So in order to do that, if you get too committed, the problem is that when people fall into this sort of sunk-cost fallacy, the things that you build,
00:40:58
because you put blood money in treasure, blood money in pain and tears into something, it's I think harder for people to let it go, right?
00:41:08
And do something else.
00:41:09
And so I think, you know, so we've tried to stay agile that way, try to stay nimble for things together, and be willing to kind of decouple something, use a different product.
00:41:18
So the vast majority of what we do is driven by vendor products, really because of that philosophy.
00:41:25
The other part about it is that we're fairly new to this, right?
00:41:27
We've only been, you know, we've only been kind of going for five, six years at scale, and therefore, you know, we are still kind of adolescent in the fintech space, even though, you know, we're part of a very,
00:41:38
very big company.
00:41:39
One is very hard thing, which is to kind of basic payments platform that we have is something that we built in the house.
00:41:46
The reason for that is that, you know, booking's business is quite idiosyncratic, right?
00:41:52
There isn't another booking.com on the planet, operating, you know, in this many places with as many products, and we also have a technology stack, which is core to,
00:42:03
you know, our main accommodations business, the hotel, and the home's business, you know, that stack has grown up over the course of 20 years.
00:42:11
It is a peculiar stack, which is specific to our company.
00:42:15
You would have had to build, you know, really complex integration layer, you know, in order to be able to work with some third-party payments platform, and the scale of the payments platform that we need feels quite bank-like,
00:42:27
but we're not a bank, we don't want to be a bank, and so we built that.
00:42:31
And so it exists as a layer that sits in between our product engineering stacks, whether flights or cars or hotels or homes,
00:42:42
and our ERP platform, SAP, and a whole bunch of other financial systems from a variety of different vendors that we use in treasury or in integration or financial analytics.
00:42:54
And so we built that middle layer to essentially maintain the ledger of liabilities and credits that are connected to the e-commerce system.
00:43:02
It then communicates with the financial systems and with payment service providers that we use to execute payments.
00:43:08
- That makes sense.
00:43:09
So you built the layer that's closest to the actual inventory, and then on top of that, everything else is.
00:43:14
- Yeah, I would say more less close to the inventory, but I mean, to be sort of nifty, I would say closest to the software layer that creates an interface with the inventory.
00:43:24
- Gotcha, okay, yeah, so okay.
00:43:26
So if you had like the software there in the middle, you're kind of-- - Exactly.
00:43:30
- Exactly, and so I think, you know, and part of it also was a design concept, right?
00:43:35
Which is, you know, I want to be an internal payment service provider to the other groups inside booking, right?
00:43:44
So the way it kind of operates is that we offer an API that somebody who's building, you know, pre-book taxi product, right?
00:43:52
Who is building that business.
00:43:54
They have an API that they can write to to request payment or receive payment from the ecosystem connected, you know, a taxi supplier or a rider or a traveler.
00:44:02
I want to give them a pipe that they can speak to, an API that they can speak to, which has an ever-increasing set of functions, but doesn't require them to do extra engineering work to kind of keep reintegrating.
00:44:14
- Right, that's right.
00:44:15
- And so, yeah, because I think it's elegant, right?
00:44:18
So, you know, you've got an API that speaks to internal product teams.
00:44:22
You have APIs that speak to payment service providers.
00:44:26
And you have then essentially an API that speaks to the financial system for, you know, our official, you know, legal general ledger that logs our transactions.
00:44:37
- That's very cool.
00:44:38
Awesome.
00:44:38
I mean, I feel like I could go on for hours ask you more questions.
00:44:41
So maybe to just do one last one before we sort of wrap up the podcast.
00:44:45
So we get a lot of aspiring entrepreneurs that listen to the podcast.
00:44:48
And so on their behalf, I'd love to kind of pick your brain a bit for advice given how, well, you know, the space.
00:44:54
If you were to start a FinTech venture today, based on sort of all your observations of the pain points that still exist, what are some of the business ideas that you would consider?
00:45:03
- Well, that's a tricky one.
00:45:05
I think, look, my view in the FinTech space, it's true in almost all kind of tech startup land, I think, but, you know, most successful FinTechs actually start with a fairly small niche,
00:45:17
right?
00:45:17
They start with something that just isn't well covered and they build from there.
00:45:22
It tends not to be grand visions, right?
00:45:25
It tends not to be, you know, I mean, they exist, right?
00:45:27
There are companies out there which are trying to do, you know, core banking platforms in the cloud and they start kind of from scratch and they spend years trying to convince, you know,
00:45:37
a single small third-tier bank somewhere to use their platform to run their business.
00:45:43
That's really hard, right?
00:45:45
And I have a lot of respect for it.
00:45:46
Now we need that kind of more macro innovation as well, but I think, you know, since entrepreneurship, you know, is a pretty risky proposition to start with.
00:45:54
I think you want to start with, you know, a clear problem that, you know, you can see volume, it's not being solved.
00:46:01
I'll give you an example, right?
00:46:02
I did some work years ago when I was a president of Earthport.
00:46:07
We did some work with a remittance app that was doing, you know, workers' remittances and also kind of, let's say rich country remittances as well, for, you know, second home ownership,
00:46:17
et cetera, you know, they discovered a startup that was just handling the Sweden to Ethiopia corridor.
00:46:25
So there's an Ethiopian corridor in Sweden, you know, famously in Marcus Sandelson, there's a famous chef in New York City, who's a Swedish Ethiopian.
00:46:34
I think he was, you know, blind Ethiopian grew up in Sweden.
00:46:37
And so, you know, it's a kind of niche business.
00:46:39
I don't think the Ethiopian population in Sweden is particularly big.
00:46:42
I think it's, you know, several tens of thousands, but, you know, Western Union and Moneygram, we just were not servicing that corridor well at all.
00:46:50
It was really slow, it was super expensive.
00:46:52
I think the average cost was like 12%.
00:46:55
It was what people were charging to move money between Sweden and Ethiopia.
00:46:59
So, you know, a startup began that kind of caught that in half.
00:47:03
They were making like, you know, 5%, 6%, something like that.
00:47:06
And, you know, they were able to convert that.
00:47:10
They also were able to, you know, make relationships directly with the bunch of Ethiopian banks that haven't much faster delivery and much better referencing information on the payment.
00:47:19
You know, they built a pretty decent little business and they got acquired, right?
00:47:22
And so, I've always thought that was a really elegant story.
00:47:26
- That's awesome.
00:47:27
Yeah, and definitely some good food for thought to kind of think about these unexplored niches for listeners.
00:47:33
Well, you know, thank you so much for your time.
00:47:34
We really love having you on the podcast.
00:47:36
- Thank you.
00:47:37
Really was a pleasure.
00:47:38
- Awesome.
00:47:39
- Thank you for listening to today's episode of the Wharton Fintech podcast.
00:47:43
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00:47:48
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00:47:50
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00:48:00
Across all these pages, you'll find articles, interviews, and much more, analyzing all aspects of the Fintech industry.
00:48:07
As always, thank you to our editor and until next time.
00:48:10
This is your host, Javani.
00:48:12
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