Cryptocurrencies like Bitcoin have exploded in value, but has that growth translated into actual use as a medium of exchange? Dr. Gerry Tsoukalas, Associate Professor of Information Systems at Questrom, explores how the travel industry is making use of cryptocurrency and how much further the technology has to go in terms of widespread adoption in this Insights@Questrom interview.
What kind of inroads is cryptocurrency making in the travel industry?
We’re largely still at the experimental stage at the moment. Some firms, like cheapair.com, have had success enabling crypto payments for consumers, but the majority of travel firms still do not have the necessary infrastructure in place to be able to handle crypto payments.
What percentage of bookings are being handled in cryptocurrency now, and what is the outlook for the future?
It’s hard to keep track of this, on any level, but it’s safe to say it’s still a very insignificant percentage. Even at cheapair.com, which is crypto-friendly and considered one of the pioneering travel platforms in terms of accepting crypto payments, we are likely talking about less than 1%. This is growing, albeit not at a rapid pace.
What are the obstacles to crypto adoption in this space? Can they be overcome?
Obstacles abound, starting with structural hurdles: the travel industry has many intermediaries and most of them want to be paid in fiat (in turn, this is partly because they need to pay their own suppliers and employees in fiat). For platforms like Cheapair and Expedia, this means having to either i) partner with crypto firms like Coinbase to handle the payments or ii) spend a significant amount of capital to develop new IT infrastructure and train their people to handle such transactions. Both options are costly. Relatedly, with the exception of stablecoins, accepting crypto payments means taking on exchange-rate risk due to excessive volatility. By the time a company processes a crypto transaction and converts it back to fiat to pay its own suppliers or employees, it could lose a non-trivial amount of money (if the position moves against it).
How can consumers best position themselves to take advantage of these new currencies when planning travel?
It’s generally good to have different payment options. For those savvy consumers that have already invested in crypto, paying in crypto for a flight or a hotel can be quite seamless and straightforward. For the rest of consumers, there is little downside in getting familiar with Bitcoin at this stage. Platforms like Coinbase make it relatively easy, and are slowly but surely making inroads to bring crypto to the masses.
What other industries may adapt to the use of cryptocurrency in a manner similar to what we’re seeing in travel?
Given cryptocurrency can be used for payments, it could potentially seep into all industries and sectors of the economy. Beyond payments, however, there is a possibility of a much larger disruption on the horizon. At its core, the blockchain technology powering the crypto is about eliminating centralization and middlemen, while a large part of the travel industry is built on this type of model. We haven’t seen any significant disruption yet, but if I were in this industry, I’d be questioning my business model regularly.
Some sectors will be more prone to disruption than others. For instance, in transportation, hospitality and food, there are numerous blockchain-based startups trying to compete against platforms like Uber, Airbnb and Doordash, who regularly take cuts ranging from 20%-50% of revenues. These startups are basically betting on the fact that the coordination services these platforms are offering can be replicated in a decentralized way, and are promising to give workers back most of these fees; not to mention, more autonomy as well.
Beyond these sectors, most of the disruption is currently happening in financial services, particularly in cross-border payments, trading, and investing. In healthcare, we’re seeing blockchain initiatives to facilitate record authentication and sharing. In the media industry, blockchain-based startups leverage crowdsourcing to post and vet content and combat fake news. In art and collectibles, blockchain-based technologies like NFTs (non fungible tokens) are redefining ownership. Some governments are also looking into blockchain technology for identification, voting, and other applications. The list goes on and on… and while arguably not every industry or economic sector is going to be affected, it’s looking increasingly likely that many will be.
