Companies ought to carry out adequate checks on the ability of borrowers to repay travel loans on time. Otherwise, a surprise disruption such as an Icelandic volcano or an economic downturn could prompt defaults.
Several major sellers of travel, such as Expedia, United, JetBlue, Southwest, and Lufthansa, are testing extending credit to U.S. consumers to enable them to pay for their vacations over time rather than up-front.
Paying for a trip in monthly payments primarily appeals to consumers with average credit ratings who are willing to accept short-term, interest-based loans. But consumers with high credit scores also appear to be getting tempted into splurging on luxury trips if companies lend them credit on attractive terms.The Skift Daily newsletter puts you ahead of everyone about the future of travel, subscribe. The new installment products — called layaway when paid off prior to trip and a loan if paid off after — have been common in developing countries.
But the concept hadn’t gained cachet in the United States until the past year. What’s new is the rise of “fintech,” or financial-technology companies that aren’t banks, but that use software to provide financial services to consumers, sometimes in partnership with banks. A few fintech startups — most prominently Affirm, Airfordable, and UpLift — are hoping that their services will make delayed payment for travel fashionable.
By slicing data finely with so-called generative artificial intelligence and other mathematical and computational tools, they believe they can manage the risk of making these non-traditional loans… read more