Many guests pay travel agencies in advance for hotel bookings. But some agencies hold the money until weeks after a guest has checked out. Many hoteliers want to get the payments sooner. They could learn a few tricks about that from airlines, which have tamed the payments monster.
Payments processing has emerged as another headache for hoteliers and travel agencies hit hard by the coronavirus pandemic. Many hoteliers and other companies in the travel sector have discovered that today’s business-to-business payment methods expose them to a high risk of not getting paid.
The crisis has made it riskier for hoteliers, in particular, to accept reservations without measures to ensure they receive money. The share of guest stays that travel agencies don’t pay hotels for has gone up due to the rising instability of some third-parties. Hoteliers are struggling and don’t need extra losses. Yet travel agencies are also affected because they face risks as many hoteliers flirt with insolvency.
So some hoteliers and travel agencies are re-evaluating their processes for getting paid.
Hoteliers could take inspiration from airlines, which have cut down on the peril of third-party non-payment after a traveler makes a reservation. Airlines insist that all payments between travelers and agencies and between agencies and the airlines take place practically at the moment that a guest books a flight. That process reduces the risk of non-payment for airlines. If the agency or airline goes bankrupt, the traveler is typically protected by their credit card issuer in the worst-case outcome.
Hoteliers face a different game in two ways. They often work with a wide array of distributors, which leads to convoluted payment processes. Hoteliers are often at the mercy of travel agencies, who usually wait as long as possible to transfer to hoteliers the money travelers have deposited for bookings. The agencies find it convenient to use the traveler deposits as working capital.
“That’s a big difference between what happens in the hospitality industry and what happens in the airline industry,” said Xavier Ginesta, chairman of Voxel, a travel-focused, business-to-business payments company, when speaking during a webinar on Wednesday.
Hoteliers lack the market power of airlines to drive other players to adopt a preferred payment process. There are hundreds of thousands of hotels, but only a few hundred airlines. That’s why most airlines get the big third-party players to pay in real-time, but hoteliers often have to wait for payment, sometimes weeks after a guest has checked out from a property.
Yet this year’s crisis has motivated some hoteliers and some travel agencies to reconsider payment reform in small groups.
One catalyst has been the drying up of credit insurance. In the past, hotels could get coverage from credit insurance companies for the risk of not getting paid by third-parties. But the pandemic’s revenue crisis has scared off those insurers from covering hotels for such potential losses.
Dash From Cash
A workaround is to use credit cards. While credit cards aren’t new, many hoteliers have preferred bank transfers to avoid paying fees. Credit card networks Mastercard and Visa typically charge between 2 percent and 3 percent for credit-card purchases in the U.S., Canada, and Europe.
To entice hoteliers, Mastercard in July lowered its fees for a travel wholesale program between travel suppliers and travel agencies and bedbanks. It’s charging between 1 and 2 percent for the so-called interchange fee for hotel reservations made on cards issued anywhere for properties anywhere.
Mastercard has made more transparent and standardized the related fees, too.
“It’s to help merchants forecast and foresee how much it will cost to accept a transaction,” said Ana Arjones, manager at enterprise partnerships at travel industries at Mastercard.
State of Pay
Cheaper and more predictable fees have won over some players.
Hotelbeds, arguably the world’s largest bedbank or hotel wholesaler, used to use bank transfers for all payments settled across its marketplace.
“Price has always been a pain point,” said Alex Rodriguez, lead product manager at Hotelbeds, noting that it is now becoming more affordable relative to the alternative cost of paying banks fees for transfers and the cost of reconciling invoices with banks.
Hotelbeds, which operates in about 60 countries, has also had to make other changes to manage its significant shift to credit cards. The company has put new processes in place to detect fraud, Rodriguez said. Hotelbeds has also set up new ways of capturing and reporting data.
“As an industry, we need to work to make sure that the payment terms and conditions for these payments flow nicely from one actor to another,” Rodriguez said. “We’ve managed millions of bookings, and every month we receive about 5,000 requests from customers about basic transactional data that hasn’t flowed through to their systems. We have to have more technology integration among all the actors in the process [to collect all the data and avoid that].”
Travel Agencies Vulnerable to Hotel Failure
The pandemic has pushed many hotels to the bring, which has boosted the risk travel agencies face when placing bookings on behalf of customers.
About 33 percent of 103 hotel owners expect to hand the keys back to their lender or enter a forced sale situation, according to a September survey by the Hospitality Asset Managers Association (HAMA).
What’s more, payments on about 16.177 percent of U.S. hotel loans that investors have packaged and sold as commercial mortgage-backed securities are more than a month late, according to Fitch Ratings. That’s up from about 2 percent before the crisis, the Los Angeles Times reported.
Any hotel foreclosure risks leaving agencies and financial firms holding stuck with the bill on outstanding reservations. So agencies and other partners have a growing interest in moving to a system that reduces risk, just as hoteliers do. Credit cards come with built-in protections for many agencies in most of the cases of hotels shutting down. For more context, The Travel Sector Is Retooling Back-Office Payments in Response to the Crisis.
“There’s pressure on both sides of the equation,” said Laurie Gablehouse, global head of travel solutions at Ingenico ePayments. “You can take advantage of the crisis to make changes to enhance or reinforce your position by sorting out your payment relationships.”
“If you’ve been assuming that money will just come through the door anonymously and at check out, then somehow your bank account will see the money, that is no longer a good position,” Gablehouse said.
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Photo credit: Hotel Zena, a new property from Viceroy Hotel and Resorts in Washington, D.C. Viceroy Hotel and Resorts