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Analysis: Could a ‘travel bank’ save financial protection?

Could the agent that pays your wages survive if it can no longer use customers’ money before it pays the supplier?

That’s probably not a question that keeps you up at night, but for many travel bosses it is one that goes to the heart of the problems surrounding financial protection, consumer confidence and the financial viability of many businesses.

For Travel Counsellors chairman David Speakman it is paramount for the future of the trade itself that many firms wean themselves off the lifeline that is the customer cash they take in as revenue, but which does not actually belong to them.

You only need to listen to how many travel companies spin their financial reports – preferring to highlight turnover or the overall value of transactions they handle, rather than profit – to realise how prevalent this is in the industry.

Emotive subject

Speakman said: “Travel is an emotional purchase and therefore financial protection, or lack of it, is an emotive subject. The need for financial protection only occurs because the industry collects the money early and from time to time uses that customer money to run and expand the business rather than fund expansion from bank loans, equity finance or seed investment.

“The travel industry has taken it for granted that it has a right not to protect customer money and that it has a right to speculate and expand its businesses on the back of this cashflow well in advance of delivering the goods.

“Normal banking protocols should exist. Companies can only be accountable when gorging on advance client money is taken out of their hands.”

In a white paper published this week to coincide with the launch of new website Ismymoneysafe.co.uk, designed to increase trade and consumer awareness of what financial protection exists, Speakman sets out his vision for a new form of consumer financial protection in travel.

So what’s his idea? He proposes ‘cloud-based’ computing technology could be used to create a virtual travel bank that would sit between the agent, retailer or supplier and the consumer into which money is paid and only released to the final supplier of that service after it is actually delivered.

An algorithm would calculate how much money is due to go to the supplier and how much, if any, to the retailer in commission. It would also calculate how much interest is payable on the retained money, so a vital income stream is not denied to travel firms.

A ‘simple’ solution

Speakman believes this concept has many advantages: it is simple for the consumer; it offers universal protection for all travel-related sales; it brings an end to the need to define what a package is; and it offers the ability for firms to project future income from the travel bank as security against conventional bank borrowing.

The concept is close to the kind of trust account setup already operated by Travel Counsellors and agency consortium Travel Trust Association, but addresses concerns about the security of trusts as the travel bank would be administered independently.

In the paper, which Speakman hopes will be picked up by government, he accepts the idea is radical, needs more work on the technical aspects and that it would have to be phased in as it would take time for many firms to restructure their business to adapt to it.

But he claims it is an opportunity for the industry to set its own course rather than have an unsatisfactory solution foisted upon it by the government and regulators.

Has it got a prayer of being adopted? Who knows, but Speakman no doubt hopes it will smoke out those who say all the right things about protecting the customer, but aren’t prepared to go the extra mile to guarantee it.

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