What small businesses lack in size, they make up for in numbers. Governments can coordinate small businesses across the tourism sector to create the same economies of scale and liquidity that large businesses rely on. Governments, local communities and businesses all benefit. As do tourists, who increasingly wish to leave a positive impact on the communities they visit.
Most of the world’s businesses are small. Unsurprisingly, most businesses operating in the tourism sector are also small—80% according to the latest estimate by the World Travel & Tourism Council.
Yet small businesses in tourism differ from their counterparts in other sectors. In tourism, a customer journey is based on a tourist’s actual journey. It’s not a journey to purchase in one industry; it’s a journey involving multiple purchases across multiple industries that have different working capital requirements, funding needs and payment terms. And the journeys often begin and end in faraway places.
This interconnected ecosystem presents a unique opportunity for governments and their associated destination marketing organizations (DMOs) to simplify customer journeys while empowering small businesses. A recent Mastercard report looks at the benefits of a coordinated approach from two sides: business to consumer (B2C) and business to business (B2B).
As borders reopen and travel returns, it will be more important than ever for tourism to rebuild in ways that drive resilience and create opportunities for small businesses to thrive.
B2C – Investing in consistent user experiences, reach and trust
A tourist—particularly an international one—might appreciate simple and standardized experiences in core areas such as payments. Still, when a space once dominated by traveller’s cheques and cash is disrupted by a variety of payment innovations, it’s important for small businesses to offer flexibility and choice. Globally, 73% of consumers agree that they are more loyal to retailers that offer multiple payment options, according to Mastercard research in 2021 across 18 countries in four regions.
A challenge arises when an “open loop” infrastructure, such as the use of cards on a payment network, is replaced by individual “closed loop” partnerships between payment providers and individual retailers. This creates friction for a tourist making purchases at a variety of small businesses, whether online when booking a trip or in-person at a destination. There’s a reason why tour operators try to make experiences seamless and convenient for consumers, and a similar model should extend to payments.
DMOs and payment networks could bring small businesses together around coordinated and standardised payment solutions to accompany tourists on their customer journeys. The approach could also help DMOs establish integrated tourism engagement platforms and marketplace websites. These could provide trusted solutions for micro businesses that want to sell online but can’t support an app of their own.
Related to trust is the importance of building customer loyalty. Unlike larger businesses such as hotel chains with multiple locations under a single brand, small businesses in tourism won’t necessarily benefit from offering a rewards program of their own. Payment-linked offers and rewards could be one way for small businesses to achieve the same reach, and DMOs could play a critical role in facilitating access. Integrated tourism apps like Visit Dubai could serve as secure and trusted loyalty platforms for small businesses while also helping DMOs better use data insights to support the ecosystem.
B2B – Improving cashflow through efficient transactions and access to credit
Small businesses are both suppliers and buyers of goods and services. The seasonal nature of tourism means liquidity matters that much more. Nearly half of global B2B transactions are still done offline, which result in cash flow issues for small businesses struggling with arduous paper invoice reconciliations and differing payment terms. The introduction of real-time payment networks has enabled financial technology (fintech) companies and request-to-pay messaging systems to partially address this challenge. Yet the use of multiple different platforms by the tourism industry’s cross-cutting value chains creates friction.
Governments and DMOs can address these challenges by using payments as the anchor to facilitate connectivity across different business management platforms. A central list of buyers and suppliers in the tourism sector could pull small businesses together in an industry-agnostic directory. Payment networks, in partnership with DMOs, could provide one central open-loop connection with easily adjustable payment preferences, payment terms and standardized reconciliation data.
This centralization also addresses small businesses’ access to credit as financiers often struggle to assess the credit worthiness of small businesses. Governments can help small businesses better manage seasonal demand and supply by helping build a trusted digital transaction history that can serve as basis for unlocking access to credit.
In addition, the anonymised and aggregated data resulting from this network can provide insights into B2B transactions and value chain flows at a macro level. Governments can use these insights to inform policy, assess levels of need, and balance the immediate provision of working capital with longer-term support measures.
Strength in numbers
The sheer number of small businesses in the tourism sector reflects their importance. Their success, and the viability of the sector, will depend on coordinating services and solutions so they can put some combined weight behind the numbers.
Promising initiatives include the United Nations World Tourism Organization (UNWTO) Digital Futures Programme. Launched on 17 May 2022, the programme aims to accelerate the economic recovery of the tourism sector and build resilience by helping small and medium-sized enterprises (SMEs) and innovative start-ups connect with digital technologies.
Partnerships between the private sector and governments are a key focus of the Mastercard Tourism Innovation Hub. Launched earlier this year in Spain, this global hub aims to foster research, apply data insights and co-design technology solutions for the sector. The global tourism industry has been through a tough couple of years, Mastercard is committed to enabling innovation and ensuring that technology is harnessed for a more inclusive, equitable and sustainable recovery.
Download the full report to learn how governments and their associated DMOs can help coordinate services and solutions for SMEs in the tourism industry:
Strength in numbers: Coordinating small businesses in the tourism sector
To learn more about how governments can help unlock the benefits of tourism across their economies, register for the webinar on 27th June.
