Comment: Payments have become a problem

Here’s how to fix it, says Toreson Lloyd, co-founder and chief commercial officer of APEXX Global

In the wake of the coronavirus crisis, too many travel and hospitality businesses have been in a struggle to survive amid declining revenues.

They have not been helped by pressures from payment acquirers, the organisations that process payments on behalf of companies, a boring but vital piece of financial infrastructure that keeps money and business flowing.

It doesn’t come cheap. Travel companies spend on average about 5.4% of their revenues on processing payments. The global pandemic is driving that cost higher for many companies, just as they try to keep their heads above water.

We have already seen some of the biggest payment acquirers severe client relationships without much notice.

In some ways this is understandable. Acquirers which focus on the travel industry find themselves horribly exposed during the pandemic.

Revenue losses in global tourism amounted to $195 billion in the first quarter of this year, with the UK, Spain and France the top-three countries with the biggest losses. Iata forecast in June that airlines would lose an estimated $84 billion this year.

Loss-making travel companies become a business risk for payments companies, which are looking to reduce their exposure.

Some travel companies are being given as little as 60 days’ notice to find another provider before their service is switched off. Businesses trying to plan for 2021 will be asking who will process my payments next year and is my company viable without this service?

This is as much an issue for international travel companies as for smaller domestic players. They all tend to use one or maybe two acquirers. This makes sense in ‘normal’ times. Getting set up with an acquirer requires technology integrations which take time and money.

Businesses may also believe they are getting economies of scale – the more transactions they push to an acquirer, the lower fees they will be charged. And there can be some real benefits working with acquirers that focus on travel. They can provide meaningful, sector-specific advice on how to boost conversions.

However, the downside to working with just one acquirer is a lack of flexibility during a crash in travel. You have nowhere to go. Even acquirers that don’t ditch their travel clients are tightening the screws in other ways.

Acquirers are telling businesses they need to increase the amount of collateral they hold or they are taking longer to complete settlements. For companies that are already stretched on working capital, this can be the final blow that tips them into bankruptcy.

While payment providers should strive to be good corporate citizens and reliable partners through good times and bad, travel merchants should be smart about de-risking their partnerships and diversifying their payment providers.

Working with a payment-orchestration platform is one solution. Instead of just working with one acquirer, they can provide access to hundreds.

Travel companies can use them to regain choice, flexibility and control over their business.

There are other benefits, too. For margin-sensitive businesses like OTAs, payment-orchestration platforms can offer reduced fees by virtue of the number of acquirers they use, bringing competition into the relationship.

They can also boost conversion rates. If one acquirer drops a transaction, it can be re-routed to another. This is crucial in a tough economic environment. You don’t want to be turning people away from your payments page once they have committed to booking.

A payment-orchestration platform can also reduce ‘redundancy risk’ – the risk that the service a single acquirer provides becomes redundant, should it suffer a service outage or change its commercial terms or hike its fees.

Having multiple acquirers gives the ability to cascade transactions or the leverage to demand better service from an existing provider.

Lastly, bear in mind that many acquiring banks use payment-orchestration platforms as a sales channel. Not every acquirer wants to get out of the travel business. Many see the pandemic as a blip and the industry as ripe for a rebound.

They are waiting on the side-lines, eager to hoover up new business, and platforms are willing to act as the middlemen.

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