NB: This is a guest article by Alex Mifsud, CEO of Ixaris.
Travel agents, bookers and consumers alike should start reconsidering their payments options when booking travel products like flights, trains and accommodation.
Users of traditional credit and debit cards in the travel industry can hit a number of niggling pain points: high charges levied on transactions; difficulties in reconciling large volumes of orders with those transactions; and problems triggering anti-fraud mechanisms at merchants.
Card surcharges
The high surcharges levied on consumers for credit and debit card transactions when purchasing travel products, particularly flights, have been well publicised.
What is less known is how these surcharges also affect third parties such as bookers and travel agents who have to go through the same booking processes as consumers.
The rub for these third parties is that they frequently have to incur surcharges on a massive scale when booking travel and accommodation for large groups and businesses.
UK business regulator, the Office of Fair Trading (OFT), for example claimed in December 2010 that in 2009 transport companies, and especially airlines, imposed levies on debit and credit card transactions to the tune of £300 million.
Much of this sum will have been absorbed by travel agents and bookers. A competitive market is leading to increasingly tight margins for these companies booking flights from low-cost airlines and discount hotel sites.
Regulation
In response to the surcharge issue, the OFT made an announcement in July this year that caused shockwaves through the UK travel industry.
It called for travel companies to clarify surcharges (a move designed to counter "drip-pricing") and potentially scrap debit card fees.
This is of particular concern to low cost travel companies like EasyJet and Ryanair. Such companies can only advertise their "low-cost" fares if they offer one form of payment that does not incur surcharges. EasyJet, for example, allows customers to avoid surcharges by paying with Visa Electron (the other typical card is MasterCard Prepaid).
While the OFT’s announcement is of course welcome news, it will be of little help to most travel bookers, agents and businesses which pay for transport and accommodation with credit cards.
Reconciliation, fraud and internal controls
Even if paying with debit cards, companies that book travel face other significant pain points. The rise in bespoke travel has led to a number third party travel companies increasingly working outside of global distribution systems such as Amadeus, Travelport and Sabre.
Many travellers no longer are satisfied with package holidays on chartered flights, but want individual trips tailored to their requirements.
Companies working in these spaces can face problems reconciling large numbers of orders with their corresponding transactions.
The sheer volume of transactions processed at different times can also lead to problems with companies that trigger anti-fraud mechanisms. Cards often get blocked when used repeatedly in quick succession.
Finally, debit and credit cards can expose weak internal controls within a company. There is always the risk that a company card can be used by an employee without authorised access.
Prepaid cards
The pain points outlined above which currently afflict the travel industry can be avoided with prepaid virtual cards which can be used by both businesses and consumers.
A virtual card carries the same data as a traditional physical card – a 16-digit card number, expiry data and 3-digit security number - but is delivered electronically onto a computer screen at the point-of-sale.
Unlike paying with a traditional card, a new virtual card is created for each transaction, with its own unique card data.
As there is a unique card for each transaction, travel companies will find reconciling orders with their transactions much easier. There is also no danger of setting off anti-fraud mechanisms as each card is only used once.
As these virtual cards are single use, it is far more secure than entrusting employees with a traditional card having a higher limit.
And because the card types that avoid surcharges – namely Visa Electron and MasterCard PrePaid at present – can be created as virtual single-use cards, travel businesses have an effective, cost-saving solution.
The prepaid card industry is already prospering. Last year prepaid cards were used for $65 billion worth of transactions, up from $48 billion in 2009, according to a Nielson report.
It is high time for travel companies to review their payments options as long as they want to remain competitive.
NB: This is a guest article by Alex Mifsud, CEO of Ixaris.