Comment: Card payments, cash flow and risk

It's hard to overstate the importance of healthy cash flow for travel companies. But credit card payments – still the most-used payment method for long-haul flights, holidays and hotel stays – can hinder cash flow as much as help it.

That is because travel companies are reliant on acquirers to settle and process card payments.

Acquirers, which are liable to refund cardholders if a travel company folds, can demand security by holding large percentages of cash reserves from merchants until a service is delivered. This can be months in the making, at which point irreparable damage may have been done to a company's cash flow.

The fact that many merchants only work with one single acquirer only increases this risk. By using multiple card acquirers to spread risk, travel companies can transform credit card payments from a potential burden to a launchpad for success.

It's no surprise that merchants are turning to multiple acquirers rather than the traditional, single acquirer model, and many card acquirers are happy to facilitate this.

The reason is simple: card acquirers don't want to harm merchants' cash flow and know that adopting a system which ties up less capital for less time is beneficial for all parties.

Relying on one acquirer can be fraught with risk. Here are two reasons why:

if you're a travel merchant working with a single acquirer, you're at risk of being left high and dry if the acquirer suddenly quits the market.

If this sounds unlikely, it is exactly the situation many travel companies found themselves in during the pandemic.

If your sole means of processing card payments is suddenly removed, your company and your customers could suffer huge disruption.

merchants reliant on a sole acquirer may find this isn't ideal for either party. The acquirer responsible for a merchant's total business carries far more risk and so may require greater security.

That means higher fees and longer periods of holding on to merchants' funds – a model that can harm both.

What does the alternative look like?

A number of different structures allow merchants to work with multiple acquirers. The most obvious approach is to contract with different acquirers separately. However, this may not encourage collaboration between acquirers.

Another option is for acquirers to collaborate using technology tools known as payment orchestration platforms which automatically choose the best acquirer for each payment accepted.

Payment orchestration platforms do this by allowing acquirers to share data, basing their selection on criteria such as location, transaction amount and currency.

These platforms carry this process out for every transaction, while enabling acquirers to access detailed data to understand their share of the fulfilment exposure for a particular merchant.

‘Bureau bank' collaborations can also help deliver more bespoke collaboration between merchants and multiple acquirers. This approach allows acquirers to work with one another to meet the specific needs of a merchant based, for example, on the countries in which the merchant operates.

The lead, or ‘bureau', bank handles the technical and contractual integration, allowing for a seamless process for the merchant.

With the right structures in place, merchants can work with multiple acquirers to spread risk, providing them with greater coverage if an acquirer exits the market.

It may even result in acquirers reducing their security requirements to mirror the diminished financial exposure – freeing up more of a travel company's cash.

A multiple-acquirer approach can ensure credit cards remain growth enablers rather than inhibitors and provide travel companies with the healthy cash flow they need.