Travel seeks ways to adopt blockchain

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Norm Rose, senior technology and corporate market analyst at Phocuswright, speaking about blockchain during the 2017 Phocuswright Conference.
Norm Rose, senior technology and corporate market analyst at Phocuswright, speaking about blockchain during the 2017 Phocuswright Conference. Photo Credit: Jamie Biesiada

HOLLYWOOD, Fla. -- Blockchain might well be a revolutionary technology that could shape the future of travel -- especially payment settlement and fraud prevention -- but it is also "the most overhyped technology right now," according to Norm Rose, senior technology and corporate market analyst at Phocuswright.

Blockchain, which was created to communicate and secure bitcoin transactions, has become a buzzword across multiple industries, and experts like Rose predict that it could begin to impact the travel sector in measurable ways in the next three to five years.

But right now, the technology is young.

"What happens when you have technology like this is that the truth is somewhere in the middle [between revolutionary and hyped]," Rose said on stage at the 2017 Phocuswright Conference here this month.

Blockchain technology is, in its simplest form, a way to move information from one point to another in a highly secure manner. As Rose wrote in a recent paper for Phocuswright titled "How and Why Blockchain Can Transform the Travel Industry," it is "an open-source, distributed ledger or database that records every transaction in a block, which is linked to other blocks."

When used with the cryptocurrency bitcoin, it essentially cuts out financial middlemen. Blockchain permanently records transactions in an open, encrypted ledger that provides direct payment to sellers.

Katherine Grass, head of innovation and ventures at Amadeus, explained it this way: "Blockchain is a technology of how to move information from A to Z in an efficient and encrypted way to help streamline and protect the process."

Essentially, a blockchain database stores information across multiple computers on a peer-to-peer network. Once something has been verified by so-called miners -- typically, computer users who get compensated for verifying transactions -- it is immutable and cannot be changed. There are both public and private blockchains (users are anonymous on public blockchains), and information is stored chronologically.

"I want to buy something and someone has something to sell," Phocuswright's Rose said as an example. "It gets put on the blockchain. It's verified by an entity called a miner. ... After that, it then gets actually added to the blockchain and you have settlement."

Rose called blockchain both "revolutionary and evolutionary."

According to Grass, blockchain is such a buzzword at the moment because of ongoing regulatory issues with bitcoin.

"Right now, everyone's just trying to figure out what the heck is this technology" and what potential business functions it could have, she said.

In travel, however, Rose and Grass agreed that blockchain's most likely application is payment settlement. The technology, Rose said, could help reduce settlement costs and time.

With bitcoin, blockchain essentially eliminated banks, or financial middlemen. That could have a significant effect in travel, he said, but that likely does not mean the industry's middlemen -- mostly OTAs and GDSs -- will be put out of business.

"It has the potential to change their world," Rose said, much like telephone companies have moved from charging per minute of landline use to becoming internet service providers and migrating to wireless phone service.

Blockchain is one of a handful of technological advancements Amadeus is testing.

A number of questions surround blockchain's practical application in travel, among them the speed of transactions. Because of the necessity to verify and validate transactions on blockchain, its speed is an "inhibitor" at the moment, Grass said.

According to Rose's presentation, three to four bitcoin transactions per second can take place on blockchain. On the other hand, it is possible to process 2,000 credit card transactions per second.

"That's a big gap," he said. But the reality is that there are an awful lot of young programmers who are working to improve it."

Outside of payment settlement, blockchain will likely be able to help combat fraud in the travel industry, Rose said.

"I'm not saying today that fraud is going to be eliminated, that when you have a blockchain-based plumbing that there's no fraud," he said. "There are going to be bad actors out there, but it does help reduce fraud tremendously."

There are a number of other potential uses of blockchain in the travel industry. For example, in a recently published white paper, Grass called out uses such as improved baggage tracking and identity management. It could also make loyalty schemes more user-friendly by making it easier for suppliers to partner with each other and transfer loyalty points.

Rose agreed, saying, "There have been discussions about having loyalty as a currency, that we're going to now have blockchain-based loyalty programs that allow interoperability between different programs."

Blockchain also enables smart contracts, meaning a contract that is created on the blockchain and triggered when an event happens; the contract is subsequently fulfilled. Auto-executing contracts could be particularly useful in corporate travel, Rose said.

Agents likely won't see their workflow radically changed if blockchain does become a dominant settlement technology, according to Grass.

"We're going to use this technology to be smarter in certain business areas, and the person sitting in an agency isn't going to know whether it's blockchain," she predicted.

Both Rose and Grass agreed that over the next year, the travel industry will see pilot programs and tests involving blockchain and its potential practical use. However, real change is probably three to five years out.

"I think there are a few interesting use cases within the next 12 months," Grass said. "I don't think that's going to revolutionize; it's going to be more of a way to experiment and understand. So the next 12 months are going to be experiment and understand.

"We're probably about three to five years away from something much bigger."

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