The Real Costs of Payment Processing

The real cost of payment processing in the travel industry is little understood, encompassing a wide range of factors that range from processing fees, to human resources, to fraud prevention and recovery; nevertheless, emerging technologies are simplifying matters and even saving industry service providers bundles.

Hospitality and travel industry organizations that are competing for bookings in the ultra-competitive space of world travel, realize that it takes money to make money and that principle hangs true even after the sale is closed.

Suppliers, travel channels, airlines, tour operators, travel agents and hospitality companies such as resorts, hotels, hostels and vacation rental management companies understand that getting paid can be a costly endeavor, but most don’t have a clear understanding of why their costs are so high, nor do they know how to offset some of that overhead.

A recent report shows that overhead costs of processing incoming payments is an industry wide concern of great significance, and that credit card processing fees are only the beginning.

Nevertheless, it may not be as expensive as it appears on the surface; especially when one considers emerging solutions and technologies.

Travel industry research authority PhoCusWright, uncovered a wide disparity between perception and reality when it comes to the real cost of payments in the industry. Most industry organizations see credit
card processing fees as their biggest concern, but they fail to take into account the vast amounts spent on human resources, manual payment processing, reconciliation, fraud reporting, commissions and chargebacks. The report showed that, in reality, credit card fees themselves end up being roughly 37% less expensive overall.

According to the study, travel industry companies report that transaction fees actually come in second only to credit card fraud as the biggest challenge in managing travel payments.

Douglas Quinby, vice president of research at PhoCusWright said, "Credit and debit cards still account for the vast majority of online travel sales, including bookings made via mobile device. Although card fees are certainly one of the most visible forms of payments, there are a range of challenges and even widespread practices – from fraud to manual processing –– that can leave their mark on the bottom line."

The report showed also that there are a number of emerging technologies, practices and industry trends that address the complexities of the travel payment landscape and that may be safer, and less expensive, than traditional methods of payment processing.

By incorporating innovative solutions that enable real time payment for bookings, agencies, airlines and other travel industry suppliers are able to create direct industry relationships that are mutually beneficial and, at the same time, increase liquidity.

One big example of these kinds of mutually beneficial relationships is that of the airlines and the agencies that serve them.

Studies show that roughly 60% of all airlines get their bookings through global travel agents. The average delay in payment for these bookings is 17.5 days, at a cost to the airline industry of close to $2.6 billion annually. Additionally, there is the aforementioned cost of manual reconciliation, consolidated risk of defaults in payment and credit check overhead that, overall, reduces revenues by an additional $67 million. Alternative solutions can be especially significant because they eliminate, or alleviate, many of these concerns, thus enabling airlines to increase their cash flow while at the same time granting special rates for those agencies that are able to pay in real time.

With alternative solutions such as mobile payments, electronic payments, bank transfers, credit card payments as well as debit card payments, virtual credit card processing and online alternatives like PayPal or XPay, among others, emerging solutions can be a great relief to the industry they serve as industry enterprises begin to understand and adopt them.

Author

Eran Feinstein is the founder of Direct Pay Online. Direct Pay Online provides global e-commerce and online payments solutions for the travel and related industries  He is a leading authority in the fields of e-commerce, travel and payments, having acquired extensive experience from various parts of the world.

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