Merchant payment processing services are a basic requirement for anyone doing business. The world is moving further from cash transactions, and for online businesses in particular, accepting electronic payments is the only way to remain in business. For some high-risk businesses, though, getting approved for a processing account creates some difficulties.
Online travel agents, or OTAs, suffer from elevated fraud risk on an industry-wide basis. As a result, they usually become classified for merchant payment processing as high risk, regardless of the credit or transaction records for the individual business.
The rating for OTAs comes largely due to the rate of fraud that occurs in the industry. According to ThreatMetrix, OTAs face a fraud rate of almost 20% of all transactions. Travel agents book itineraries that include transactions for flights, hotels, rental cars, and excursions, each of which represents a potentially fraudulent transaction.
Online businesses of all kinds face fraud due to the distance online transactions entail, but these are big ticket items, for which reversals for fraud can create significant chargeback problems for the bank.
Even beyond fraud itself, customer dissatisfaction with a particular booking can lead to chargebacks for part or all of the travel costs incurred. This results in fees for the OTA and for the bank, as well as lost funds. In addition, the uncertainty of the revenue streams for these businesses add further risk for the financial services institutions when they score and try to approve the account.
Finally, the risk grows further because it comes so broadly. An online company processing particular kinds of transactions comes with fraud and chargeback risks, but they fall within a narrower set. OTAs run transactions all across the globe, with different kinds of businesses on behalf of many customers.
In their intermediary role, they are particularly vulnerable to disputes from either their customers or the businesses with which they book travel arrangements. Managing the array of transactions, with elevated risks coming with each one, creates a unique level of concern for this industry.
Given the risks associated with OTAs, many banks will not provide merchant payment processing for them. Others may charge very high fees on each transaction, tightening the profit margins for these companies and making it difficult to maintain business operations. The realities of the merchant payment processing industry create frustration and raise the cost for OTAs of doing business.
Often, the solution to these concerns lies not with the biggest merchant payment processing providers, but the smaller, leaner organizations. Smaller payment processing companies, including payment facilitators and independent sales organizations who specialize in working with higher risk businesses. They often have the flexibility and creativity to develop solutions that larger, more regimented organizations do not.
Online travel agencies face a unique set of business challenges that can make it difficult to obtain merchant payment processing services. Fortunately, options exist that can help them not only receive the processing services they need but to get the quality of payment processing services that allow them to conduct business well.
John is currently the Senior Vice President & Head of GlobalOnePay leading business development and partner teams. John has over over 20 years experience in the electronic payments industry, with roles including co-founding a successful businesses in the financial services and merchant acquiring space. John has held senior management positions with multiple top tier acquirers and was CEO/Co-founder of Base Commerce.