Travel clubs, airline ticket vendors and similar merchants must prevent fraud and high declines for payment processing. Travel merchants have a tough job watching for threats like weather events and airline or other personnel strikes. Obviously, the last thing needed is throttled summer growth due to exorbitant processing fees and chargebacks cutting into margins.
However, there are many factors increasing the risk to acquiring banks and processors working with travel merchants like airline ticket sellers, clubs and timeshares. And with increased risk, come increased fees. According to a Travel Payments Study by PYMNTS.com, 5.4% of global travel sales last year went directly to payment processors. The cost to merchants was over $74 billion in the process.
Furthermore, the increasing globalization of travel means that merchants are scrambling to accept new forms of payment like cryptocurrencies and e-wallets. Merchants are increasingly banking offshore to better serve global customers, adhere to regulations and protect against currency fluctuations. So, what can you do as a travel merchant to lower payment-processing fees and seize new opportunities to scale?
Why travel merchants suffer high payment processing fees
Travel clubs and operators are tagged as high-risk merchants for multiple reasons. Firstly, a vacation booking has many moving parts. A customer can issue a chargeback if their purchase isn’t quite right (e.g. incorrect flight details, poor hotel experience, etc.). Also, many customers book way in advance, so orders that are paid today and fulfilled months later carry more risk. The payment processor can be on the hook for thousands of dollars. But, the risk of high transaction value chargebacks isn’t the only thing elevating processing fees.
Merchant account providers must absorb the costs of supplying tools like built-in data protection software and multi-stage secure checkouts to prevent fraud. This is substantial considering the alarming rise in card not present (CNP) fraud. This type of deception is expected to exceed $70 billion over the course of the next five years. Only recently has it been highlighted by a Europol investigation into transactions within the European Union (EU).
The inquiry revealed that airlines lose $1.3 billion to CNP fraud annually. They concluded their investigation with a major international sting, resulting in 193 arrests. A total of 43 countries, 75 airlines and eight online travel agencies were involved in the fraud.
Why travel operators need to have offshore payment processing capabilities
Domestic travel is popular across countries as large as the US. But, increased profit margins and scalability are found in international travel. Scaling without offshore merchant accounts is impossible. Merchants might have trouble with cross-border transactions in various global regions due to local restrictions and regulations.
By securing offshore processing you can increase transaction approval rates with airlines, hotels and car rentals whilst crucially remaining in accordance with local laws and stipulations.
Here is just one example. Let‘s say a US-based tour operator organizes car rentals for customers in Barcelona. That merchant cannot maintain access to credit card processing. You don’t have to have a local payment processor in Spain specifically,. But you must be registered with at least one payment services provider within the EU to process payments from their member countries. By accessing a provider in one country that is part of the European Economic Area (EEA), you connect to the remaining 27 member countries.
Also, securing an offshore merchant account in the EEA helps build your balance in euros rather than dollars. This strategy offers protection against currency fluctuations. It allows gateways to transfer euros across borders of up to 19 countries without incurring huge fees.
Another reason to secure offshore processing is conversion rates. Protocols such as PSD2 and 3DS2 reduce conversion rates by as much as 20% in Spain. But with the help of a local payment processor, you can instruct their analysis tools to only dynamically trigger security protocols based on previous user behavior. Increasing sales dramatically whilst remaining secure.
Why travel merchants need to explore all payment processing options
With the increasing globalization of travel, it’s imperative that travel clubs, airlines and other travel merchants diversify their banking and payment options.
Whilst credit cards have long been the mainstay of online purchases, they are generally declining as a method of payment. Credit cards are still strong in countries such as the USA, but they only accounted for a quarter of all online payments last year, with that expected to fall to just 15% by 2021. Considering this information, it’s high time travel merchants broaden the scope of their processing abilities. But what other payment options are there?
e-Checks are simply electronic versions of their paper counterparts. They offer consumers another method of payment when credit cards aren’t possible (e.g. in a country where you have no credit card processing).
Though they take longer to clear (six business days), this option is likely to increase conversions. All that’s required to make payment is the bank account number, routing number (or sort code in some countries), and name on the account. e-Check is more secure than credit cards as it’s more difficult for criminals to obtain sensitive information compared to card data.
Another benefit of e-checks is you can reduce those dangerous chargeback rates. For one to be issued, a customer must physically visit their bank, swear an affidavit and submit several supporting documents. It’s a far cry from simply calling a bank.
2. ACH Processing
Whilst credit card use is declining as a payment method worldwide, direct bank transfers are holding strong. They make up 17% of transactions today, with a projected share of 16% in 2021. Automated Clearing House (ACH) processing gives travel consumers the ability to make direct transfers to your bank. The benefit is you avoid sky-high card processing fees altogether.
Despite the fact that it can take a couple of days for a payment to clear in the USA, banks operating within markets like the EU often clear payments within hours. It’s perfect for travel club, timeshare or airline ticket sites that have or want to develop presence in that region.
More and more cryptocurrency or virtual currency is increasingly an accepted form of payment in many parts of the world. Popularity of these methods have risen due to Facebook introducing “stable” coin (Libra). Unlike Bitcoin, Facebook’s virtual currency wouldn’t undergo the same extreme volatility.
Leading players in the travel industry such as Booking.com are now starting to accept payments via BitPay, a cryptocurrency payments processor. Interestingly, BitPay reports that travel industry payments rose by 13% on its platform last year, and the average value of those payments rose by 21%.
But cryptocurrency provides the most opportunity for non-traditional customers to make payments. There are an estimated 1.7 billion of unbanked individuals around the globe. They are all excluded from booking travel, because they have no payment method available to do so.
Therefore, if you manage to develop this payment functionality within your business ahead of competitors, you have the chance to gain a competitive advantage by working with previously unreachable customers who want to travel. Keep in mind, your customers must be able to present their travel documents and correct ID when fulfilling their travel tickets.
Why hiring outside payment experts saves you time
Scaling your business is difficult enough without having to simultaneously juggle several different payment processors, offshore accounts, and new payment functionalities.
That’s why it makes sense to work with an external payments expert who already has experience within the industry. Having an external team who understand the intricate details behind travel payment processing (such as airline acquiring, travel clubs, and timeshares), makes your expansion into new territories much simpler.
Consider deferring and combining all payment-related tasks to one trusted provider. You can save the costs of handling multiple payment processors and US, EU or Canadian domestic or offshore merchant accounts.
You can collaborate to develop different payment strategies that reflect the prevailing consumer demand of the specific region you’re targeting. For example, focus on credit and debit card processing in Europe where the technology functions at its best. Meanwhile, concentrate on ACH or credit cards in the US where these methods are the most prevalent payment modes.
Scale your travel business today with tailored payment solutions
The travel industry continues to grow, but high payment processing fees and the lack of offshore processing presents challenges. This is especially true for companies contemplating international expansion. There are many hurdles like local regulation and legislation. Moreover, consumer attitudes toward using tried and trusted payment methods like credit cards are rapidly changing.
Opinionated shifts present opportunities for many travel businesses to gain an edge over competitors by offering multiple payment types. Additionally, merchants can benefit from providing payment options used more prevalently in a customer’s native country. That’s why it makes sense to delegate the management of offshore payment processing to experts who have existing relationships with international payment providers.
Increase the number of bookings for your travel club, timeshare or airline ticket business! Beat competitors in your industry to international expansion, and then make sure to contact our team today!