Model benefits a range of stakeholders and builds consumer confidence, says Protected Trust Services’ Tom Clay
The travel industry has had, for many years, a very bad habit of using consumers’ money to finance working capital needs before providing the service for which they have been paid. This has never seemed to me to be reasonable or fair.
Most services are paid for in arrears and most professions require a separation of clients’ money from their own. The trust account is a straightforward way to do that in travel. It is simple, easily understandable and encourages stronger, better-capitalised travel companies.
The recent rapid increase in growth of trust accounts in travel demonstrates a wider appreciation of the benefits to a wide range of stakeholders.
Card acquirers see trust accounts as a means of ensuring consumer funds are ring-fenced and the holiday is fully-paid for before any profit is received by the holiday organiser.
Suppliers know funds are available to pay them. Cashflow is crucial to all businesses today, but suppliers are more likely to accept more generous payment terms if they know consumer money is in trust. They know the cash is there.
But most importantly, consumers take great comfort from trust accounts. The pandemic has highlighted consumer concern about refunds from travel companies. This will multiply tenfold if we see the level of insolvencies in travel that many are predicting.
To be able to demonstrate to consumers that their money is held securely and ring-fenced in a trust account is a great comfort to them.
At Protected Trust Services, we believe it is important that all consumer funds in trust should be reconciled on a daily basis, not just to travel company, but down to individual booking. This ensures no consumer can subsidise the holiday of any other.
This is a basic requirement, which we believe should be required in law – just as is the requirement now to have independent trustees. We also strongly disagree with treating ground-based and flight-inclusive holidays differently in trust. The same protections should be available to all consumers buying holidays.
But while there could be improvements in some trust providers, it is still the case that ring-fencing consumer funds is the safest way to protect the consumer. And it is the most flexible with the level of consumer funds in trust naturally rising and falling with changes in turnover, something that does not happen with insurance or bonding.
During the pandemic, it has been clear that refunds to consumers and travel businesses have been a problem.
Airlines have not been refunding under EU261, as they should, and hotels and other suppliers have sought to retain cash. This has caused knock-on issues for many travel agents and tour operators (including those who have used trust accounts, but to a much lesser degree).
However, I am certain that those using trusts are in a far stronger position than most. Travel companies which adopt the trust model have made a huge number of refunds and where consumers have been happy to move travel dates, they have money in trust to allow them to deliver the holidays they have sold.
My worry for the travel industry outside of companies operating trusts is that a lot of consumer funds have been utilised for working capital needs. The money is no longer there to meet Refund Credit Notes (RCNs) and the obligation to fulfil RCNs will tip many travel businesses into insolvency.
Furthermore, the impact of travel companies using consumer funds for simple cashflow purposes has had, and will continue to have, huge negative impacts on the industry as a whole.
We are seeing insurance companies, merchant suppliers and now reputable suppliers changing their terms and conditions and credit assessment to mitigate their risk when dealing with the travel industry.
Fundamentally, it isn’t purely the consumers who need to trust the travel industry.
Our business partners, stakeholders, suppliers and trade colleagues also need to trust the travel industry. A daily reconciled trust account allows complete financial ‘track and trace’.
The ability to know precisely where monies are at any given time will enhance trust. Trust in every application of the word is imperative for the UK travel industry to recover from Covid-19, and for the industry’s entire future.