Hopper’s hop into the fintech space to innovate travel

From the “worst business you could imagine” to a US$3.5b valuation

A FEW things make Hopper an enviable company today – nearly US$600 million in funding (mostly achieved during the pandemic), a valuation of US$3.5 billion, and never a cent spent on Google ad words. 

It hasn’t been all roses however. Hopper’s founder and CEO Frederic Lalonde, speaking to the WiT crowd at last week’s Homecoming conference, told of a journey that was defined by a pivotal moment in late 2018 and 2019 when even being the largest single app in the US in terms of monthly downloads brought them no money. 

“We were the worst business you could ever imagine,” admitted Lalonde. Depending almost wholly (99.7%) on air revenue, Hopper was struggling to make a good case for its business model. 

Frederic Lalonde (right) with Phocuswright’s Pete Comeau and WiT’s Yeoh Siew Hoon: “If we had made even a little bit of money, we probably wouldn’t have innovated so hard … creativity loves constraint.”

That realisation was a pivotal point for Hopper and steered it towards success. “If we had made even a little bit of money, we probably wouldn’t have innovated so hard … creativity loves constraint,” admitted Lalonde. 

This desperate attempt to survive led them right into the world of fintech “before fintech became cool”.

“I would love to tell you we saw the future but we had no idea,” he further admitted.

What they did know was how to predict and tell customers when to buy air tickets at their lowest prices. They were able to help customers save money 95% of the time.

“But five percent of the time we would get it wrong. Why were we throwing 5% of our customers under the bus? What if everybody pitches in $5 and when we get it wrong for Pete, we just pay up the difference,” said Lalonde, explaining the basis of its risk protection product. 

He said it started from the very simple notion of a risk pool and from there, “accidentally stumbled” its way into this process that lets customers buy protection against risk. Now, 70 to 75% of its revenue comes from its financial product. 

Unlike insurance products, Hopper’s risk protection products did not need to be registered or regulated. “These are protection products like price freezes which is just us making a commitment to pay the difference if the price goes up,” said Lalonde. “So it was much easier for us to build than someone who was rebuilding a bank.”

Hopper copped all the risk on its balance sheet before the pandemic initially because it had “nothing to lose” and “no big revenue streams coming in”. But then the pandemic hit. Prior to the pandemic, its algorithms were calculating worst case scenarios as a hurricane on the eastern seaboard of the United States. 

“I remember in 2020 sitting in our office in Montreal looking at all the planes getting grounded in Europe. Everything was shut down. I remember thinking it’s now Monday. By Friday, we will be out of business. We will be gone. We had more risk on our P&L than we had cash in the bank,” recounted Lalonde.

“It was a nightmare for everybody who was selling travel. It would have been like everything Amazon was selling in three months being returned on the same day. Its warehouses would collapse,” he said. 

However, one might say fortunes favoured the brave. Hopper came out of this crisis with the most robust set of data. “We trained our models with a data set that would have taken us decades, if we would have even been able to accumulate it at all,” said Lalonde. 

Having now placed itself in the fintech playground, Hopper is looking at other financial products and Asia is a region it looks to for inspiration.

Lalonde says his current fascination is the wallet model. “People who have not lived or worked in Asia don’t necessarily understand what this is,” he observed. He highlighted Grab as an example, a company he now watches closely as a sister company since they share an investor. 

“They have figured out both sides of the wallet – depositing and paying.” Again, he said, innovation through necessity, since credit cards were not widely used in Asia when Grab started. “The fraud rates were basically zero because they are on both sides [of the wallet].”

He noted that in Asia, a lot of companies were built out of this ability to control both sides of the wallet and have now inched their way into offering other financial services because they are part of that transaction. 

For now, the Hopper team is busy growing its world. Instead of just being a B2C app selling risk-protected travel products, it has introduced a B2B product Hopper Cloud that allows other travel companies to provide risk protection on its products, much like what Hopper itself has been offering. Recently, India’s MakeMyTrip announced its tie-up with Hopper, leaveraging the latter’s AI-enabled pricing tools.

“We looked at the opportunity to make a difference for the customer. Why can’t you freeze a price on an airline site? Why can’t you freeze the hotel rate? Being able to freeze the hotel room [rate] while you make up your mind is just a better way to buy,” said Lalonde.

He said Hopper Cloud’s anchor customer in the US is Capital One, a major bank whose portal is now powered by Hopper Cloud. 

“We currently have Hopper Cloud deals signed with companies on every continent except Antarctica. This gives you an idea of the speed at which this has been adopted. I would contend that our crown jewel is the Hopper experience. Fintech is just a way to innovate in travel, and we want to make this accessible to as many people as possible,” said Lalonde.