Daniel Stanbridge of Paysafe explains how smart risk-assessment tools can improve relations between travel merchants and acquirers
The outlook for the travel industry is brighter than for many years, but travel merchants can still face cashflow issues.
The struggle to maintain liquidity is partly due to how merchants work with acquirers – the businesses which accept credit card payments on their behalf. Why is this proving a challenge for the industry and what tools are there to tackle the issue?
When a customer pays for travel using a credit card, acquirers can demand collateral from a travel merchant to protect themselves in case the merchant goes bust before the customer travels.
Acquirers are liable to refund customers via a chargeback if service isn’t delivered, so it’s no surprise they seek protection – sometimes retaining 100% of funds from a transaction until the moment travel gets underway, otherwise known as “wheels-up”.
While offering protection to the acquirer, this presents a serious cashflow conundrum for travel companies.
Funds are often withheld for months, playing havoc with their financial wellbeing. Acquirer holdback of card funds was cited as a reason for the fall of industry titan Thomas Cook in 2019.
It’s important to remember that acquirers aren’t eager to cause these issues for merchants. In fact, this situation harms them too, but many acquirers lack the tools to change things.
Lack of data insight
Acquirers often lack visibility of their true exposure to merchants due to poor data insights. Instead, they calculate the collateral they require based on average fulfilment periods in the industry – the time between payment and ‘wheels-up’.
This leads to highly conservative assumptions, skewed by lengthy periods during winter and spring when many consumers have booked holidays but not yet taken them.
Put simply: without the right data, acquirers could be holding on to too much of merchants’ funds for far longer than necessary.
Thankfully, smart tools are now available which can deliver much-needed insight to protect acquirers against potential chargebacks without tying up travel merchants’ funds for so long.
Smart risk-assessment tools allow acquirers to calculate their exposure to each travel merchant accurately, giving them access to precise figures instead of estimates based on industry averages.
This enables them to take a less conservative approach and only demand the funds they really need.
These tools deliver greater business intelligence to acquirers, helping them gain clearer understanding of their work with travel companies. They do so using different layers of data:
- Payment transaction data.
- Booking data, such as the airline, departure dates and whether the trip is multi-leg.
- Ticketing data, which captures changes to the date of travel or redemption of a credit note.
- Card scheme rules, which dictate the time limit on when cardholders can raise a chargeback. After that time limit lapses, there is no risk exposure.
The tools reconcile this information and visualise it on a dashboard, offering the acquirer a clear, real-time picture of its exposure to a travel company, and how this may change in the future.
For travel merchants, this means greater transparency, and fairer, more predictable hold-back arrangements on payments.
Improved relations
Smart risk-assessment tools can deliver serious value for travel merchants, especially if an acquirer provides a merchant access to their own data via this platform.
For example, travel companies can gain a greater understanding of an acquirer’s risk exposure, and the likely adjustments the acquirer makes. This can help merchants better plan their budgets.
In addition, it allows merchants to hold acquirers to account, using data from the dashboard to negotiate reduced terms if the acquirer is holding too much in reserve.
Finally, travel companies should be able to see whether an acquirer is likely to demand increased security because of an increasing risk exposure. They can then proactively reduce the acquirer’s exposure, whether through launching late-booking deals or discounts for non-refundable bookings.
While challenges remain in the relations between acquirers and travel merchants, the smart tools now available can ensure a smoother working relationship and allow the travel industry to tackle cashflow issues.
Daniel Stanbridge is senior vice-president at payment solutions platform Paysafe. This is the first in a mini-series of articles on travel industry payments