Daniel Marovitz joined Booking.com to introduce payments into its then-basic hotel-booking service. As senior vice president of fintech, Marovitz is enabling the company to remove financial friction from travel and serve as the global platform of choice for purchases of lodging, transportation, and more. In this episode of Talking Banking Matters, Daniel speaks with McKinsey partner and payments industry expert Uzayr Jeenah about what makes transactions especially complex in the travel industry and how streamlining payments eases customers’ pain points. This is an edited transcript of their discussion. For more discussion of the banking issues that matter, follow Talking Banking Matters on your preferred podcast platform.
Daniel Marovitz: Payments is the only business on earth that measures annual turnover in quadrillions of dollars. Thousands of trillions, right? Many, many multiples of the world’s GDP move through the pipes in payments. My attitude was, what I want us to do is to become the most powerful, sophisticated integrators, not necessarily the best zero-to-one builders. So our job is to scan the universe for the capabilities that we need, to negotiate hard to get good deals from the best vendors out there, and then integrate a service which is today made of the products of more than 130 separate companies into a cohesive, integrated, well-oiled machine. We kind of stick to that approach.
Uzayr Jeenah, McKinsey: So, Daniel, welcome. Why don’t we start by just talking a little bit about your journey and how you got to be at Booking.com?
Daniel Marovitz, Booking.com: I guess it starts a little bit with how I got to payments. I ended up getting recruited into Deutsche Bank in 2000. Prior to that, I had no experience in any part of the financial services world. And I was an internet tech guy. I got recruited not because I knew anything about financial services, which I genuinely knew next to nothing. I got recruited because I was an e-commerce internet guy.
It was a crazy time. I was drinking from a fire hose, not knowing really anything about financial services. And then, during my more than a decade at Deutsche, about halfway through my tenure there, my kind of mentor and boss, Michael Cohrs, with a C, not the K, the banker, not the designer, suddenly became responsible for the transaction bank, essentially the commercial bank. Michael said, “Look, you’re the sort of most techy guy on the leadership team, so why don’t you join the management team? And the opening that they have is for you to run product, so why don’t you become head of product at the transaction bank?”
At that point, Deutsche Bank was the largest payments institution in the whole of Europe. It was doing a trillion US dollars a day, with a T. Major trade finance house, major FX [foreign-exchange] house, the biggest of the time, and also a pretty big trust and security services, hedge funds servicing type businesses, all of which were in the transaction bank. So all of a sudden, I’m on the leadership team in the transaction bank, and I’m the head of product, and thus begins another massive drinking-from-a-fire-hose process.
I came to understand that not only did I really enjoy lots of attributes of financial services and find it fascinating, but I also realized that payments is sort of fundamental to life. Modern life runs on electronic payments infrastructure, and yet most people, even very educated, sophisticated people, don’t understand the first thing about how it works. But they expect—for whatever weird reason they might want cash—when they go to the ATM, it will come tumbling out. But more importantly, they expect when they pick up their iPhone and they tap to pay, it’s instantaneous, instantly accepted, available everywhere, works multi-currency, and nobody gives a thought to what it is.
And it’s massively complex. It’s fundamental to how economies operate. And it’s now embedded in life in all sorts of powerful ways, so I became kind of addicted to what that world looks like and the in-many-ways surprisingly rich amounts of innovation that have happened for decades but continue to happen in this space.
Uzayr Jeenah: From that point at Deutsche Bank, how did you come to recognize the strategic opportunity that payments presented at a company like Booking.com?
Daniel Marovitz: I met the woman who at that point was the CEO of Booking, and we went for lunch in Amsterdam and had this conversation, and I realized during the course of the conversation that Booking wasn’t taking payments. Booking was this giant e-commerce beast and already, nine years ago, was already one of the largest e-commerce players in the whole of Europe. But from a certain perspective, you could argue that Booking wasn’t an e-commerce player, because it wasn’t involved in the transaction. And at least from my payment nerd’s perspective of the universe, you have to consummate the transaction to really be an e-commerce player. I think it’s an intrinsic part of what it means.
But it also meant a few things. The first is about travel and payments. Travel is a super strange corner of the e-commerce world. It has a bunch of characteristics which are very distinct from other parts of e-commerce. I’ll go through a few of them.
The first is that, to state the obvious, travel is about going places. And when you go places, it means, in many cases—in almost all cases, really outside of the European Union, and even within the European Union, it’s not always the case—when you cross a border, you’re crossing a currency. And when you cross a currency border, you’re crossing a payment system border, and tax borders, and all sorts of things. So there’s a level of complexity that even the largest e-commerce players that are selling physical or even digital goods don’t have to deal with. Because usually the physical-goods marketplaces are quite domestically specific—buyers and sellers from that country, in that country’s language, in that country’s currency.
The second part is that almost every other corner of e-commerce is for immediate delivery. Now, the obvious example is online gaming or Kindle or Netflix or Spotify, where you’re buying a digital good and you want it delivered instantaneously. There is really no kind of execution risk on the part of the provider. You log in, you create your account, you pay, and within maybe 60 milliseconds, you start your stream of the new song or whatever it is. And even in physical-goods e-commerce, increasingly both legacy players and new players are delivering within the day or even sometimes within the hour or two hours, even if you’re buying something that comes in a cardboard box. But in travel, people are booking days, weeks, months in advance. So that’s a big distinction.
The next piece, of course, is that the ticket sizes are much larger. It’s not fashion or basic consumer electronics, which have been such big categories for so long. In the fashion categories, somebody’s buying a pair of Nikes for $85. In travel, it’s very common that it’s $130, $140, $150 a night for three nights, plus a flight. It can easily be in the high hundreds or thousands of dollars or even tens of thousands of dollars, and that’s also distinct.
And then the last piece, which contributes to interesting dynamics around fraud and chargebacks that have to be managed in travel, is that it’s an experiential product. So the example I always give is that if you wear Air Jordan size 10 in blue, as long as it’s not a knock-off, counterfeit pair, when they show up, you’re going to be happy, because you’ve worn the same pair of shoes for ten years, and there’s no delta between your satisfaction and the delivery. It’s going to work. With travel, it’s an expensive product, you book in the future in foreign countries often. And in so many cases, you’re not going to have been to the place you’re going.
Uzayr Jeenah: Wow, that’s an incredible level of complexity. How can you manage it all?
Daniel Marovitz: I think, “What are we here to do? Why does Booking.com exist? What’s our purpose as a company?” We can go from a bit macro to slightly more micro. At a basic level, we are a marketplace. We do not own what we sell. We are selling something owned by somebody else. Our job is to provide a series of tools that make it easy for the owner of inventory to display their inventory in a digital marketplace, to make it easy for people with demand in hospitality to find that inventory, and then to arbitrate a safe and simple marketplace for those buyers and sellers to find each other.
But if you get one level below the absolute basics of running a travel marketplace, so many of the frictions, fears, anxieties, pain points, annoyances connected with buying travel products are financial in nature, right? Americans in particular—because it’s a vast country, bordered by big oceans, at least on two sides—are somewhat less accustomed to foreign exchange, so paying in other countries and other currencies is a real source of anxiety. Somebody from Switzerland doesn’t have that experience, because they live in a landlocked island of a currency surrounded by other currencies. And so, as you move around the world, there’s kind of a very local feeling about how payments and payment-related pieces, like foreign exchange, affect your sense of comfort and anxiety. They also represent a really meaningful economic opportunity.
So, how does that manifest? It manifests in lots of different ways to pay—109 different ways to pay across all the Booking brands, across Booking Holdings. And Booking is perhaps the poster child for A/B experimentation. It’s something we’re really kind of committed to. I always make the joke, which is mostly true, that at Booking, people don’t care about a good idea, they’re interested in a good experiment. So can you take your good idea and build an experiment to prove with data that what you think is true is actually true? We feel the same way about how we test financial products. So with the payments products, we have the same kind of A/B testing rigor on all attributes of what we deliver to make sure that it’s solving a real problem and it’s adding benefit to our business as well. So there is incrementality, there is conversion uplift, there is lower customer service inbound—all those types of components.
Uzayr Jeenah: Yeah, and that point on conversion and the connection between payments and conversion is incredibly important. How do you think about the trade-offs involving friction, managing risk, and optimizing unit economics?
Daniel Marovitz: It’s complicated, and I’ll give you some of the dimensions of why it’s so hard. Things have changed a lot in the last five years, but historically, Booking as a company was very focused on in-session economics. So, five or six years ago, we weren’t really focused on loyalty. We weren’t really focused so much on the behavior of a customer over a period of quarters or years. What we were focused on was optimizing the economics on an in-session transaction: How did this user get here? Did they get here direct, or did they come through a paid channel? What’s the conversion rate when they hit the top of the funnel to the bottom of the funnel? What is the customer service burden associated with the product, or the user origin, or those sort of things, but it was very in-session.
As the business has gotten more complex and more competitive—not just Booking but across the industry—unsurprisingly, we’re spending more time thinking about loyalty and thinking about user dynamics. So, is this a direct booker, or is this not a direct booker? Are there payment methods which are more or less associated with direct booking or indirect booking? Are there payment methods which are more or less associated with higher order size or lower order size? And are those payment methods higher-cost or lower-cost to prosecute?
We also, as a company, push into different dimensions depending on seasonality, depending on the overall performance of the business. We might be willing to take lower ROIs from a marketing perspective at certain moments. If trading is a little bit more difficult, we might take higher ROIs.
And even things like the ordering of payments in a drop-down menu for users of certain countries of origin can affect conversion rate and can also affect which payment methods they choose, which can affect the cost of taking that transaction. As you know, in Europe, debit card transactions are in the low double-digit basis points; you’re not talking about percent. This very premium kind of benefits-rich cards that are really popular in the US and Mexico and places like that can be 400 basis points. And in a business where the standard commission is around 15 percent, absorbing 4 percent revenue—huge swing. So those dimensions are things we think about, but sometimes what we also see is that some of those more expensive payment methods are connected to higher order sizes and longer trips. When they are, the commission we earn on the hotel component, we get paid a percentage of the total value, so we’re incentivized to have a higher value, a longer length of trip.
Uzayr Jeenah: And are you starting to see this kind of structural shift that I think people have posited for a long time—away from credit card toward more A2A [account to account] or alternative payment mechanisms? Is that materializing in your super complicated world?
Daniel Marovitz: I would say it’s an interesting picture, and I think a couple of things are true simultaneously. The first is that if you look at the total percentage of transactions which are going across the traditional card rails, whether credit or debit but in a traditional scheme branded rail, the percentage of the world’s payments that they represent is declining all the time. What’s also true is that the total transaction volume that’s going across the big payment rails is increasing—and increasing at a good pace. That’s happening for lots of reasons, not the least of which is that e-commerce continues to eat the world. So the pie is getting bigger, but the percentage of each pie that they command is declining slightly all the time. What I would say is that it’s a very heterogeneous picture.
I’ll give you an interesting example. The Netherlands has had a payment method called IDEAL, which is effectively a bank. It’s branded separately, but essentially, the Dutch banks got together 20 years ago and said, “We’re going to create a system in our very small country with a very small number of banks where we can get all the banks around a one-pizza team with the CEOs of all the banks and create a method that can take that volume. And in the Netherlands, it’s really succeeded. IDEAL’s really dominant in most e-commerce, settings.
You go across the water to the UK, and card schemes are dominant. Now, perhaps more debit than in the United States, which is, of course, less expensive for merchants. But card schemes are really powerful, and richly benefited card schemes like an American Express card are pretty big in the UK. So it’s a very, very local picture.
Macro, what do we see? A couple of things. Yes, increasing numbers of alternative payment methods around the world. We track about a thousand at the moment which have some reasonable volume behind them. Astounding, right? There are many, many more than a thousand, but they’re a thousand that are sort of legit somewhere in the world.
The other thing, of course, is that we have regulation in Europe which puts a cap on interchange. It makes credit cards cheaper, and there’s also been enormous amounts of effort, at the supernational, European Union level, but also at the national level, to push bank-based and debit card schemes and probably soon digital euro. We see those functions, and it’s evolving all the time, so it takes a lot of effort and a lot of resources just to stay up-to-date with what’s happening. And of course, there are regulatory changes everywhere, and there are some regulators which are more innovative and changing faster. Reserve Bank of India, for example, has been at the forefront of payments regulation and payments innovation for a long time now.
Uzayr Jeenah: Talking about innovation, talking about change, obviously the big hot topic is stablecoin. How are you guys thinking about this and preparing for an evolution in how this works?
Daniel Marovitz: With difficulty, I think is the fair assessment. And I say “with difficulty” mostly because, it’s extraordinarily fast-moving. Number one.
Number two, Stripe, Google, Amazon, Visa, Mastercard, OpenAI all are pushing. Not necessarily different—some of those groups are working together, but there are lots of different flavors. There’s, like, six standards emerging. So it takes quite a lot of resources for people to be close enough to it. We’re involved directly in pilots with all those companies, working with all of their innovative product groups that are focused on these topics at the highest levels.
It’s certainly a resource drain for us to be able to do it, but we also feel like this very likely is the start of a really interesting and important revolution in how things get bought and sold. For the world’s largest online travel company not to be there is impossible.
I would also say, with a bit of frustration and perhaps humor alike, it isn’t lost on us that almost every single time that one of the hyperscalers stands up on stage and makes some product announcement, there’s almost always some hospitality use case that gets mentioned. So I think there’s a lot of excitement about it. I do think that if you double-click into a number of the agentic commerce cases, it’s not necessarily so easy to show how it’s radically different from some things that are possible now. I think the use cases that really distinctively necessitate a true kind of agentic outsourced, judgment-based, commerce decision with associated payments doesn’t feel like it’s so many. But it doesn’t mean that we’re not deeply involved in it.
Of course, the part that’s super interesting here is that if we, just to keep it simple, talk about the card schemes, we have 50 to 60 years’ worth of card scheme policy but also associated national law in essentially every country on the planet of how to adjudicate disputes, fraud, chargebacks, card breakage, et cetera, et cetera, associated with natural persons making transactions, either online or offline. And now, when you’re talking about passing the capacity to make the judgment of a purchase to a bot, those bots don’t have standing in the card schemes, and they don’t have standing in law.
Uzayr Jeenah: How do existing consumer-protection regulations such as Regulation E apply when an AI agent or bot initiates a payment on behalf of a consumer?
Daniel Marovitz: So the responsibility is an interesting question. How does liability get managed in this world? I think it’s going to take a while for this to settle down, because it is a fundamental change.
I think what will end up happening is that it will come to a more simple position, and I think there will be some sort of standardized way for you to mandate a bot to do something on your behalf. And there’ll be a series of sign-offs and questions that you’re asked to parameterize that search. It will take a while to get the UI/UX [user interface and user experience] right and to get the legal framework around it right, to ask the right questions and make sure that it’s certified, and it’s going to have to be biometrically verified. And then the benefit will be that most of the law connected to adjudicating disputes will be able to maintain its standing. Because rather than changing all of that, the only part you’ll change is the surface for mandating a bot to execute something on your behalf. If you can solve that problem, then all the rest of the law can stay the same.
Uzayr Jeenah: As you’re talking about doing all of these things and you’re shifting customers into more of a merchant model, rather than a platform model, how’s that changing the complexity for you and your team?
Daniel Marovitz: I think the short answer is “much more complex.” There’s no question, right?
What we’re trying to do is to solve pain points—pain points for the traveler and pain points through the partner that the partner experiences. And there’s a whole variety of things that we can do to solve those problems. But, to go back to the start of this conversation, because it’s travel, because it’s happening all around the world, because payments are subject to financial crime risk management frameworks and regulatory frameworks, and when you move money and do transactions in countries, it triggers tax questions, there is just an enormous amount of complexity that we didn’t have before in an agency model.
There’s no way to avoid that it’s definitely more complex, but what’s also true is that, using payments and financial products, we’re able to better monetize those flows, which I think is our responsibility to shareholders—in effect, to maximize the value of the ROI of the marketing that we’ve spent to get somebody to come to the platform, whether buyer or seller.
Uzayr Jeenah: And Daniel, as you guys are building this amazing story, what’s the most exciting innovation or thing that you have done over the last quarter or six months that you feel comfortable sharing?
Daniel Marovitz: It’s a good question. The first thing I would say about how we build our product is that we are building the world’s largest meta PSP [payment services provider]. And what I mean by that is we are not, for example, a merchant acquirer. So we don’t have an acquiring platform, we don’t have an acquiring license. With some of the legal entities that we have, we have the capacity to do it, but we haven’t gone down that path. Why? Well, look, as big as Booking.com is, we think there are lots of institutions out there, lots of companies out there that are focused on optimizing merchant acquiring—economics, performance, security, et cetera. And so what we try to do is to take a best-of-breed approach, which is focused on integration rather than building.
I’ll be honest, when I first came to Booking, that was already the kind of idea that I had in my head. Booking has a lot of history of building our own stuff ourselves, in-house. When I came to Booking, my approach was different, which is, look, as big as Booking is and as big as we’d love to make Booking become in the future, the financial services world and the payments world in specific is just mind-blowingly enormous. Payments is the only business on earth that measures annual turnover in quadrillions of dollars. Thousands of trillions, right? Many, many multiples of the world’s GDP move through the pipes in payments.
My attitude was, what I want us to do is to become the most powerful, sophisticated integrators, not necessarily the best zero-to-one builders. So our job is to scan the universe for the capabilities that we need, to negotiate hard to get good deals from the best vendors out there, and then integrate a service which is today made of the products of more than 130 separate companies into a cohesive, integrated, well-oiled machine. We kind of stick to that approach.
Apple doesn’t manufacture a single component in the iPhone. It’s a product of hundreds of vendors, and they work to build the design, to integrate components from hundreds of different vendors, assembled by other vendors, to make what is the world’s most profitable hardware product. In many ways, that’s kind of my model. Our innovation is, to a large degree, a derivative innovation of being able to find the best vendors for the right purpose at the right price around the world and assemble them together in a way that works.
Uzayr Jeenah: How are you navigating brands trying to go more direct in member pricing for branded cards?
Daniel Marovitz: This is a problem in a way that has existed since the founding of Booking. I think any hospitality provider comes to an OTA [online travel agency] at some level with a heavy heart initially, because they’d prefer to be able to market and distribute this product without needing more help. I think that’s just a fact. So the thing that I’m very conscious of and the leadership of Booking is very conscious of is that we have to earn our revenue. We have to prove the value of what we offer every single day, and the value that we offer has to continue to evolve.
There are more and more tools out there for hotels and other providers to go direct, so they only give us business when they know that we’re able to provide incrementality. Otherwise, it would be illogical. And I think the fact that we’ve been able to continue to grow the business for so long speaks to our ability to continuously evolve the value proposition that we deliver to both sides of the marketplace. As you know, Booking, like many marketplaces, functions very much on the sort of flywheel effect that Jeff Bezos so famously described. Because we have fantastic inventory, the travelers come to us. Because the travelers come to us, we get the fantastic inventory. And thus it spins.
With financial products, we’ve added new dimensions to that flywheel effect. Because we offer more ways to pay that are relevant and cost-effective and solve the problems of travelers, they come to our platform and not somewhere else. Because we get that extra weight of travelers, it means that suppliers are more likely to lean in with us and give us better inventory on better days and better rooms. Because the travelers have been attracted to the platform, because we can pay a hotel in a currency that is not their domestic currency, that better helps them manage their cash, they’re more willing to give that inventory to us and not somebody else.
What’s interesting about the fintech journey over the last eight years or so is that we haven’t slowed the flywheel. I think we’ve accelerated the flywheel. We’ve just added new on-ramps and off-ramps to how that flywheel effect works. But it’s the same old dimensions of demand and supply that have been there since the dawn of Booking as a marketplace. We’ve just added lots of color and decoration to that flywheel from fintech products.
Uzayr Jeenah: Daniel, thank you so much. You’ve helped to shine a light on a really interesting niche and part of the market that I think most of us don’t think about too much in our day-to-day lives but actually all of us depend on.
Daniel Marovitz: Thank you very much. Really a pleasure and an honor to be with you.
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