NB: This is a guest article by Mike Lauze, senior product marketing manager at Wright Express.
The recent buzz around regaining control of pricing and margins in hotel distribution is deafening. Everyone seems to want a piece of the action.
Room Key wants to attack the issue. Google, Facebook and Apple are looking to throw their weight around – adding to the already influential impact of the OTA "frenemies".
At the risk of stating the obvious: margins always matter, and hotels are feeling the pressure like never before.
While we’re piling on – has anyone observed the geometric growth in the use of credit-card based payments by third party intermediaries in reserving and settling with hotels in the last ten years?
With pressures on margins from distribution costs, the prospect of accepting credit cards to get paid is an unwelcome factor.
Let’s put this second factor – credit card payments -- into context, and consider three reasons why you’ll want to stay ahead of the curve here.
Reason #1: Both credit card payments and travel intermediaries have been around a long time, and have achieved an influential scale. The implications on efficient payment methods are several. Embrace, or dismiss at your own risk.
The OTAs and travel management companies are not going away. In fact, their influence—particularly in emerging markets--is likely to accelerate. Meanwhile, supplier acceptance of credit cards dates back decades.
In some instances as OTA influence and volume began to ramp, credit card adoption for payment and settlement at points in time has been supplier (hotelier)-driven.
A few observations for the debate:
- The sheer volume of transactions between 3rd party intermediaries and hotels in travel places a significant premium on efficient methods of payment and settlement. Otherwise, both payers and hotelier merchants can literally become overwhelmed with accounting, dispute and settlement
- Credit cards play an integral role in existing reservation systems, and that probably will not change anytime soon.
While credit card payments for travel have been around forever, "Single-use ghost accounts" (SUGAs) – for reservations between OTAs, TMCs, and hoteliers have been adding innovations and value since 2000.
Here’s a quick run-down:
- SUGAs are transaction-specific, and are used only once per transaction.
- They include controls, or credit limits for the exact payment amount.
- Each purchase request, such as a hotel reservation is first electronically evaluated against a company’s pre-specified controls, including spend limits, merchant restrictions, acceptable usage dates, etc.
- The transaction is then assigned a virtual credit card number with which vendors can process payment using existing POS credit card networks.
- When the transaction completes, the credit card number expires and the account closes–never to be used again.
With SUGAs, all the associated payment data is saved for future reporting, research or reconciliation, as needed.
In addition to basic payment data, enhanced payment data (like reservation number) can be forever tied to the specific credit card number used for the payment, making them a powerful accounting tool.
Reason #2: The sheer complexity of travel distribution, the variations in business models, and the players involved create significant opportunity for custom payment solutions that benefit both buyers and suppliers. SUGAs are just one example.
In 11 years’ time, several SUGA innovations by leading issuers have tailor-made the solution to create even more efficiencies for both parties in travel booking. Enhanced authorization routines, and approaches that deal with the complexities of cross-border payments are a few areas of advancement available today.
The advantages of leveraging single-use accounts are several, and exist for both intermediaries and the hotels they are paying.
OTAs and travel management companies benefit from:
- Precise control of hotel reservation payments means managing to contracted rates, and not being saddled with inadvertent ancillary charges
- Significant accounting reconciliation efficiencies that saves teams of accounting clerks manually deciphering payment details to close the books each month
- Significant cost savings in managing operational call center teams who are researching and resolving payment disputes.
Hoteliers will appreciate:
- Faster payment on money owed which can dramatically improve cash flow – particularly when compared to cumbersome paper-based invoicing & payment methods
- Guaranteed form of payment that is immediate
- A consistent process with current check-out business practices and integrates seamlessly with current reservation systems, which makes for efficiencies in staff training
- Improved relationship with travel resellers (OTAs, TMCs, etc)
- Similar accounting efficiencies in their A/R departments.
Reason #3: Continued investment in payment schemes for travel booking will drive even greater efficiencies at lower costs.
The reality is that the credit card based networks for B2B payments– particularly those serving the U.S. market – have invested the most, and introduced more innovations more quickly.
This has been particularly beneficial to those participating in the travel sector.
The obvious elephant in the room cannot be ignored: hoteliers currently bear the cost of accepting these forms of payment. While the costs are real, known, and can be measured at a specific rate, it’s the "hidden" costs of inefficient paper-based payments that hoteliers may often forget when making the choice to accept credit card payments or not.
These hidden costs are often orders of magnitude larger than the costs of credit card acceptance.
SUGAs have played a critical role in taking the first step toward payment efficiencies between OTAs and hotels. And, they are likely not the end-point.
Payment networks and alternate payment schemes are receiving a lot of attention and investment in today’s fast-moving and ever-changing banking technology sector that are likely to create even more efficiencies in the payment chain at a lower cost.
NB: This is a guest article by Mike Lauze, senior product marketing manager at Wright Express. Contact Lauze via email or call US 1 207-523-7320.
NB2: February 23 2012 - Tnooz-Wright Express FREE Webinar: Practical ePayment applications for travel booking.
NB3:Credit card hotel image via Shutterstock.