One of the most important factors to starting and running a successful tour operator or travel agency is the ability to take payments from your customers, both online and offline. Obtaining the ability to take credit or debit card payments from your customers is paramount. Without these facilities, you could be turning away business.
There are a number of routes to obtaining your own travel merchant account but as a start up or small travel business obtaining a travel merchant account can be challenging, if not impossible.
Unfortunately, the travel industry is considered high risk by many merchant providers. This is primarily due to the level of chargeback risk travel businesses pose to the merchant providers.
What is chargeback risk?
A chargeback should not be confused with a refund, which is simply a merchant refunding a transaction.
The merchant’s processing bank is always 100% responsible for all transactions performed by the merchant. In most industries, this can leave the merchant provider open to millions of pounds of potential losses if the merchant operates in an illegal or risky manner which generates many chargebacks. The merchant account providers usually pass this onto the merchant but if the merchant is fraudulent or simply does not have the funds then the merchant provider must pay all the funds back to the customer to make the card holder whole.
The risk of a travel business failing before the consumer has received their purchase adds additional chargeback risks to merchant providers. Also, there is an increased chargeback risk by travel companises selling a certian standard of holiday and supplying a lesser standard. The reasons for this are outlined in the examples below:
Example 1: If a customer walks into a clothes shop and purchases an item of clothing at the till they would pay for it using their credit card and walk out of the door that day with their purchase.
Example 2: If a customer purchases a holiday pre payment is required anywhere up to 12 months in advance of the actual travel date. During this time the travel company may experience financial difficulties and cease trading. This then leaves the customer with little or no choice but to process a chargeback with their card company resulting in a loss for the merchant provider.
Example 3: If a customer purchases a holiday based on a 4* hotel description with kids club but supplied a 3* hotel without a kids club. The customer could complain to the holiday company but the holiday company could argue terms and conditions or such like that aren’t valid. A customer MUST be supplied what was sold unless agreed by the customer prior to travel. If a dispute were to occur then the customer can process a chargeback.
How to obtain your own merchant account in a high-risk industry
Even though the travel industry is deemed high risk by travel merchant providers there are a number of routes you can take to obtain your own merchant facilities. We have outlined two of the main routes below:
Applying directly – In order to obtain your own travel merchant account, you can apply to the merchant providers directly. They will ask you to provide information to access the level of risk they take by providing a merchant account to your business. Once they have completed these checks they will either decline your application or approve it with terms in place to improve security. These terms can include some or all of the below:
- Security deposits or bonds equalling a percentage of your peak turnover
- Rolling reserves which result in a percentage of customers funds being held by the merchant provider for up to 12 months at a time
- Personal guarantees
Applying through an approved trust account model – Due to the unique way that the trust account protects the consumer’s funds against the failure of a tour operator or travel agent the risk to merchant providers is greatly reduced. Merchant providers are much happier to consider travel companies operating through a trust account arrangement as it mitigates the risk of the consumer’s funds being non-refundable in the eventuality of a failure.
A big benefit of applying through a trust account model is that additional security such as personal guarantees or bonds is rarely needed. Usually, this method of applying for merchant facilities is the most successful.
To discuss further do call The PTS team on 0207 190 9988 and we shall be happy to help you. Alternatively email, firstname.lastname@example.org