Imagine what a tourist from Beijing, Brooklyn or Toronto must feel upon arrival in Cuba. The tropical Caribbean island was once a thriving center of travel and tourism, with 49 commercial banks, 4-8 Pan American Airways flights daily from Miami to Havana, hotels, casinos and attractions like the Great Theatre of Havana, Tropicana cabaret, La Bodeguita and the iconic Malecon.
Today, Cuba is as beautiful as ever and despite economic hardships, continues to attract tourists from all over the world, particularly from Canada (the largest market for Cuban tourism). In fact, tourism still dominates the Cuban service sector along with retail and finance.
Despite Cuba’s natural advantages as a destination for travel and tourism, the political and economic situation makes it difficult for airlines, hotels and other travel merchants to do business in Cuba. The country has a retrograde banking system that depends on foreign exchange inflows and the financial sector is heavily regulated. Stonegate Bank is the one U.S. bank that services Cuba, with authorization from the Central Bank of the Republic of Cuba and the US Office of Foreign Assets Control. The major U.S. airlines are taking a long-term view and remain committed to serving the Cuban market competitively.
Although Cuba remains isolated from the global banking system and economy, a new class of entrepreneurs has emerged. These “cuentapropistas,”as they’re known, rely on mobile technology to connect Cubans to travel, trade and ecommerce, both on the island and internationally. There were 150,000 cuentapropistas in 2008, and in the decade since, these self-sustaining consumers have multiplied to approximately 580,000.
Mobile Payments and Ecommerce in Cuba
If Cuba is unique in Latin America in terms of its challenges to airlines (it has virtually no ecommerce sector, for example), it also represents unique opportunities. The diversity of its domestic resources is stunning and helps facilitate different types of tourism: health, mountain, active, all-inclusive, cultural and thematic tourism, to name a few.
U.S. airlines should look at Cuba from a global perspective rather than just its place in LATAM, the Caribbean and North America. The country has natural ties to the APAC region in China and Vietnam, two of the most important emerging travel markets. Chinese influence could speed up Cuba’s market liberalization as the opportunity for travel and tourism grows globally, driven by demand in Asia-Pacific. Mobile payments will be key to facilitating ecommerce in Cuba, whether through an airline or hotel app, online travel agency or other distribution channel, though it will require cash payment options as well.
Cubans often depend on friends and relatives in the U.S. to make purchases for them (remittances to Cuba are conservatively estimated at $2 billion, the primary source of income for most Cubans), so any airline payment strategy should take a wider view than just the needs and limitations on the island itself.
Branding Power for Airlines and Hotels in Cuba
Marketing and advertising are prohibited in Cuba – even local staples have no more than 30% brand recognition, though discretionary categories like electronics have achieved more recognition. But as the population’s purchasing power grows, airlines can leverage the “pull” of global brands like Apple, Samsung and local brands like Clandestina – a Havana-based t-shirt company that has been creative about using ecommerce to do business across borders, partnering with travel operators like Carnival.
To get around the country’s lack of ecommerce, Clandestina uploads its t-shirt designs online to a company in the U.S., who is then legally allowed to pay Clandestina’s designers in Havana. In this way, Clandestina has been able to win market exposure outside Cuba – its t-shirts were sold on Carnival Corp.’s first cruise from Miami to Cuba in more than half a century, and the t-shirts are offered on Holland America cruises to the island. Clandestina’s t-shirts are more than just fashion – they are cultural statements that resonate with the growing entrepreneurial spirit on the island and with the Cuban diaspora in Miami.
The ”sharing economy” has also had an major impact on Cuba as it has allowed ordinary Cubans to rent out their properties to tourists through Airbnb. This is just one sign of change in the Cuban economy, and other travel brands like Carnival have been quick to seize on the opportunity (airlines should be paying close attention to the cruise industry’s approach to Cuba). Still, challenges persist. The OTA group VaCuba has acted as an intermediary in getting payments to Airbnb hosts in Cuba, but a month delay in payment is not uncommon. Airlines and hotels are not going to fix these problems by themselves, they will need PSPs and other partners with local connections.
Currency and Payments in Cuba
The biggest challenges for airlines and other travel merchants are within Cuba itself – including limited (and expensive) Internet access, a non-existent ecommerce sector, aging airports, dual currencies, nationalized industry and heavy regulation. Nevertheless, the government has invested heavily to make Cuba an attractive destination for tourists, although it has done so in the form of “enclave tourism” which keeps tourists isolated in international hotels and resorts and places like Varadero, Cayo Coco, the beaches north of Holguin, and of course, Havana.
These tourist enclaves are the few places on the island where international credit cards will be accepted. Cash is still king in Cuba, although the government is trying to figure out how to phase out its dual currency system, divided between the Cuban peso (CUP) and the Cuban convertible peso (CUC). The CUC is pegged to the dollar and worth 25 times as much as the CUP. Tourism workers on the island have access to CUC currency from their tips, which greatly increases their buying power over other Cubans, even over government employees (i.e., the majority of the population).
When visitors arrive in Cuba, their very first stop is to exchange their foreign currency into CUC. They often carry thousands of dollars in foreign currency because they won’t be able to use credit cards on the island. Of course, carrying cash is highly dangerous and underscores the importance of mobile payments in making travel easier and safer for tourists.
Market Potential for Travel in Cuba
After the thaw in U.S.-Cuba relations, Travelucion Media (a Cuban online travel agency) saw booking revenue on Cuba-centric sites increase as much as 250% and the number of American site visitors jump from 11% to 33%. Cuba can become again what it once was – a center of international tourism – but only as Internet access, payments and ecommerce penetrate deeper. Payment service providers (PSPs) will play a key role in supporting the island’s newly formed entrepreneurial class as it paves the way for cross-border trade, travel and tourism.
Cuba does pose significant complications, but if airlines are serious about serving this market, their payment strategy will need to be front and center. But where there are challenges, there are always solutions and opportunities, particular in the payments sector. CellPoint Mobile provides the flexibility, cost-effective solutions and local connections that airlines will need to do business in Cuba and across Latin America.