Why the travel industry is reluctant to change payment rulesNewsBy Viewpoints | September 6, 2010Share This article was originally published on NB: This is a guest post by Ben Colclough, director of Tourdust adventure travel and a former payments industry professional.With rumblings in the airline world, and the high profile collapse of E-Clear in the UK, payments is fast becoming one of the hot topics in the travel industry.The problem lies in the nature of travel bookings. Consumers pay in advance, leaving a gaping window for the travel company to go bust and the customer's money to disappear.The result? Customers end up paying through the nose in credit card surcharges...Let me explain: Step One: Travel companies collect payment well in advance of travel. Good for their cash flow, but ...Step Two: As a result, travelco incurs costs of bonding (for UK folk through the Civil Aviation Authority) and higher discount rates (banks usually charge the travel industry high discount rates because they don't want to be exposed if the travco goes bust).Step Three: Travco passes cost on to consumer, either in inflated credit card surcharges or built into the price (if surcharges are prohibited as in many US States).Step Four: The customer pays through the nose - all to support the travco's cash flow. So big travel companies get round the problem (at the customer's expense), but it is creating massive barriers to entry to new entrants.Credit card facilities are increasingly difficult to secure for young startups, for example. The problem is compounded further in developing destination markets.As customers increasingly look to book direct with smaller local operators in the more exotic destinations they visit, there are no satisfactory payment and bonding mechanisms in place to meet the demand.Local operators are now taking bookings online from overseas customers at scale, but few can offer any form of bonding or payment options other than Paypal and Western Union.When asked why, one Inca Trail operator claimed they had been quoted fees as high as 8% for Visa and MasterCard payments.Even the behemoths of the airline industry are starting to stand up and take notice.Quoted in a Flightglobal report, Forrester Research vice-president Henry Harteveldt states: "It's no secret that airlines are frustrated with the way credit card fees work and their relatively high costs. ... Credit card companies have no choice. They had better realise the writing is on the wall."Share this quote He is right to a point, but airlines are the cause of the issue too. Merchants always enjoy bashing the acquirers for their outrageous fees, but in reality airlines expose banks to significant risk.Ultimately, the industry needs to look long and hard at why it needs to take payment at the time of booking.Yes, they need to secure access to funds to ensure the customer doesn't default on payment, but there are other ways to achieve this.Two alternatives spring to mind: Pre-authorisations, where the merchant effectively reserves the payment on the account to call at a later dateA Paypal-like payment scheme which combines the role of bonding and payment scheme and centrally manages the risk of the merchant (hello Paypal/Tripit/CAA mashup?). But unfortunately, unless we are all willing to forgo advanced cash flows, then the travel industry simply has to continue to live with the current level of fees irrespective of the payment scheme du jour - be it credit card, mobile payment or Paypal.NB: This is a guest post by Ben Colclough, director of Tourdust adventure travel and a former payments industry professional.