Travel Disruptors: Bringing fintech to travel booking

The travel app Hopper launched in 2015, with the bulk of its initial revenue coming from airline ticket sales. A few years later, the company ramped up a travel fintech business—selling consumers algorithmically enabled financial products such as price-freezing capabilities and cancellation insurance. It has since expanded those offerings and made them available to other travel companies as a B2B service.

“When we started Hopper, we thought it would be very cool if we could become a billion-dollar company,” recalls cofounder and CEO Frederic Lalonde. “Today, we’re well above that.” Lalonde says Hopper, which was launched in Montréal but has been fully remote since 2020, employs more than 1,500 people and has raised more than $750 million in private capital.

In this installment of Travel Disruptors, Lalonde spoke with McKinsey’s Jean-Philippe De Montigny about consumer psychology, the power of gamification and social commerce, and the trade-offs involved in targeting younger travelers. The following is an edited transcript of their conversation.

McKinsey: Hopper began building a proprietary suite of travel fintech products in 2019. Can you share with us what initially triggered that strategy?

Frederic Lalonde: We launched travel fintech products out of necessity. In 2019, we were still a travel app with a focus on forecasting airfares. We were trying to cater to a younger generation. And we were having trouble making money. We had almost 20 million users, but we needed to find ways to increase the profitability of the company.

A lot of our competitors were relying on marking up baggage fees, or charging users for canceled trips. We saw a path forward that could benefit both consumers and airlines while also allowing Hopper to grow. What we did was take our expertise around forecasting airfares and use it to create a suite of financial and protection products—things like freezing ticket prices or creating refundability even when the ticket being bought wasn’t refundable.

We made this move because we needed money. But it soon became a core part of our value proposition. And a lot of our customers now come to us, and come back, because of these financial products that we offer.

McKinsey: Can you tell us why these financial products appeal to consumers?

Frederic Lalonde: The consumer psychology around these products is fascinating. From our standpoint, all we’re doing is taking a bet. We use an algorithm to determine, for instance, at what level we can freeze a ticket price. If some frozen prices go up, which means we lose those bets and the consumers benefit, it’s OK because we’ve calculated our overall win/loss ratio.

But the consumers don’t see it that way. They don’t think they’re making a bet against the house, like they would in a casino. They are just trying to remove a component of anxiety. We’ve found that understanding that psychological need is the key to selling these products. So rather than explaining the bet to them, we just fit it into their natural shopping flow. We portray it as paying a higher price to maintain flexibility and reduce anxiety.

McKinsey: What makes Hopper’s financial products unique?

Frederic Lalonde: There are other companies that have dabbled in this. Airlines, for example, allow you to lock in fares for a few hours or a few days. Some other travel portals allow refundability.

But we offer our core fintech products—things like canceling for any reason—on both hotels and flights, and we allow customers to freeze prices on cars, hotels, and flights. The generalization of these offerings to every part of the travel wallet is something that nobody else has really done.

The second thing that makes this unique is the sheer scale. Almost half of our customers attach a financial product to a transaction. On average, they buy one-and-a-half financial products. So there’s a core popularity there. It’s part of what our customers expect from us.

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The third element is our ability to price it. Launching a product that freezes a price is relatively easy to do if you’re willing to lose millions of dollars a day. What’s difficult is to do it profitably, and at a price that the consumer will actually agree to pay. We can do that because we have a massive data store that we use for our predictive pricing.

McKinsey: Hopper is also known for incorporating social commerce and gamification into its travel app. Can you share a few of the strategies you employ?

Frederic Lalonde: Because we are app first, we take a lot of our inspiration from the East. Companies like Meituan and Alibaba have developed a commerce model that’s based on a mix of social products, financial services, and social commerce.

The foundational principle of social commerce is that you reward your customers for engagement. If they are actively promoting your brand, promoting a sale that you might have, playing a game, or just scrolling through your app, you lower the price of their commerce. This social-commerce approach has been a driver of Hopper’s growth as a brand since the pandemic ended.

One simple example of social commerce is a streak. If you’ve never used our app before, we give you $20 in credit just for showing up. That creates a reason to book on Hopper instead of going back to whichever website you were previously using. And if you keep checking in every day, we will let you earn more each time just for engaging.

We’ve seen enormous numbers with this. About 700,000 people have claimed a streak to earn between $10 and $20 in credit. And they’re ten times more likely to book [a trip] if they start this process. We find it’s better for us to just give that money directly to the customers to activate them.

The younger, mobile-first demographic that we target allows us to pursue strategies like these. On mobile, there are many micromoments when you have downtime—perhaps you’re waiting for your coffee or something—and we give you a reason to engage during those moments. This type of engagement model is very common in places like China and Southeast Asia, but it’s much less common in the West. And it’s becoming a unique value proposition for Hopper.

McKinsey: Are there trade-offs involved in pursuing younger customers who might not have as much discretionary income as an older traveler?

Frederic Lalonde: Hopper definitely targets a younger audience. About 70 percent of our customers are either in Gen Z or in the younger tranche of millennials. This does create trade-offs, because travel often costs a lot of money—it’s not like buying a pair of shoes or some double-A batteries. We engineer our fintech products to help younger customers get access to the same travel experiences that their parents might have.

There are various age-related issues we deal with. For instance, if you’re under 25, there’s usually a fee that car rental companies will charge. We’ve negotiated with a lot of our car rental partners to waive that young-driver fee. We can do that because we aggregate a large enough customer base.

And what happens when those customers get older? They start buying more expensive tickets and hotel rooms. At that point, we hope, they’ll already have adopted us as their core travel brand.

McKinsey: Hopper Cloud offers Hopper’s fintech products to other travel companies. What was the reasoning behind moving into B2B?

Frederic Lalonde: We saw that the financial products we offer on Hopper were not only generating income for us but also unlocking new customer spend. In North America, when a customer comes to Hopper to make travel purchases, they spend, on average, an extra $40 per booking. They do this because they want flexibility, protection, and optionality.

We realized that if we were able to offer our financial products to other companies—whether it’s an airline, a hotel, or even a competitor—it could generate another $400 billion to $600 billion of currently unrealized travel spend. That’s new money coming into the ecosystem.

So in 2021 we launched Hopper Cloud, which we dub “risk as a service.” It offers our financial products to partners, and it provides the end user with flexibility and refundability. I sometimes jokingly say that we’re monetizing anxiety.

A slew of companies have come to us for Hopper Cloud because getting new customer spend at a high net promoter score means higher loyalty, higher conversion, and also new revenue. And today, with corporate travel still depressed, almost everybody is looking for new revenue sources. Hopper Cloud was a zero-dollar business two years ago, but it now provides 50 percent of our global revenue. Its growth rate is in the high triple digits.

McKinsey: What’s been the biggest lesson you’ve learned in your journey at Hopper?

Frederic Lalonde: There’s a cheesy quote that gets used in boardrooms: “Skate to where the puck is going.” Hopper started succeeding as a company when we began to build for the future, not for the current state of things.

The best example I can give you is that in 2015, we launched as a mobile-only app when the vast majority of travel commerce in North America took place on desktops. It seemed to make no sense to put all our resources into mobile, which was still a minor channel. But I’d worked in India, where cheap mobile phones had hit the market, and I’d seen that within a few quarters the mobile share of Indian travel commerce grew dramatically.

You don’t need to be 100 years ahead of your time to create an advantage. You just need to be ahead enough to understand where the next generation is going. Today, we have 100 million mobile users because of the decisions we made in 2015.

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