Current rules on consumer financial protection of package holidays lead to double or triple protection of payments while travel agents, tour operators and banks remain exposed to financial risk.
That leads financial service providers to increase the costs for handling payments and places “a burden on the industry and its sustainability”, according to Sami Doyle, director of Trust My Group and chief executive of insurer TMU Management.
Speaking at a Travel Payment Summit in Brussels organised by the European travel agents’ and tour operators’ association ECTAA, Doyle suggested: “There are challenges around risk [in the sector] that are overlooked.”
He noted payment terms between intermediaries and suppliers are not subject to regulation but argued: “A tour operator must consider financial protection of the customer and the risk with the supplier.”
Doyle told the summit: “I’ve worked in a lot of risk markets [and] travel is unique. The [financial] exposure can be up to 18 months [and] the risk burden is all over the place.”
That made the payments process “expensive and cumbersome”, he argued.
At the same time, Doyle noted the failures of Monarch, Flybe, Air Berlin and Thomas Cook in 2017-20 and warned: “The market is boom and bust.
“Travel is booming [now], but we need to prepare for the next bust.”
Atol protection in the UK is “offset by card protection”, he noted, with card use “incredibly high” and backed by chargeback protection “which creates risk for acquirers” – the banks licensed by card schemes Visa and Mastercard to handle payments.
The risk of chargebacks – when consumers seek repayment of transactions – leads acquirers to add “security terms” to payment charges.
Doyle described the pressures on travel businesses as “multi-fold”, arguing: “Protecting the money two or three times adds unnecessary cost.”
He pointed out a tour operator or agent needs an account with an acquiring bank “and a bond or scheme [to cover] the risk, and may also have insurance [although] it’s the same risk being covered”.
Doyle warned the increasing use of ‘virtual’ cards online was adding further risk and creating “rolling credit settlement that is expensive”.
He criticised European Commission proposals to limit package holiday prepayments, saying “we know that is not going to work” and warned that creating one regulatory regime in the EU with restricted prepayments and another in the UK without “would create a commercial rift where one market has a benefit over the other”.
Doyle suggested removing the duplication through use of technology “so we know where the money and the risk is”.
He noted CAA proposals for UK Atol reform include “having more visibility of where the money is” through segregation of customer payments and argued: “We need to look at cover across the entire chain.
“Bring everything together in one system and have clarity on who holds the exposure.”