Even pre-pandemic, the travel industry and its acquirers had their set of problems to deal with. Then came COVID and its economic effects, and these concerns escalated into a full-blown-out catastrophe.
But insiders will tell you that payment problems in the travel sector problems go way back. A walk down memory lane reveals ‘blame games’ after the biggest failures in the industry, e.g., the fall of Monarch Airline and Thomas Cook. Often, neither the travel agencies nor the payment partners are willing to take responsibility for the failure.
These problems arise because acquirers withhold funds to lay off the chargeback costs they must compensate clients if the travel agency runs out of business.
Though this move makes sense on the acquirer’s end, it may harm the travel agency. Withholding funds hinders cash flow creating extra pressure and potentially encouraging the downfall that the acquirer is evading in the first place.
And the COVID-triggered economic constraints have worsened the situation. Last year, the worldwide travel & tourism sector incurred losses worth $4.5trillion. To put this into perspective, though the global GDP reduced 3.7%, travel’s contribution to the world economy plummeted by 49.1%.
But money constraints and chargebacks aren’t the only problems the travel industry has endured since the pandemic began; most have faced operational hiccups, as they had to process all the canceled bookings.
Sadly, as travel took a beating, acquirers responded to the unbearable market conditions by rethinking their terms of business or quitting the industry entirely. As a result, the travel sector is underserved, and this transition has worsened the relationship between agencies and acquirers.
To address these issues, we must analyze the root cause of the problem. In particular, payment enablers consider travel a high-risk sector, and this was so, even pre-pandemic. Nevertheless, high-risk branding applies to all business models where there’s significant time between the consumer’s payment and the date the company delivers the service or item. This window is even longer for the travel sector as it may go 60 to 90 days.
Suppose the agency fails to deliver the services for any reason, whether cancellation, unanticipated situations like Coronavirus, or the agency goes out of business, the acquirer becomes legally liable for customer compensation. And with the high value of travel industry transactions, this could mean losses worth millions of dollars for an agency, a risk that most acquirers can’t stomach.
Travel needs reliable payment services and a solution to its cash flow problems. If this stand-off isn’t settled as soon as possible, it may slow down the travel sector’s recovery from the pandemic’s economic impact.
Author Bio: Blair Thomas has been a music producer, bouncer, screenwriter and for over a decade has been the Co-Founder of eMerchantBroker, the highest-rated travel merchant account processor in the country. He has climbed in the Himalayas, survived a hurricane, and lived on a gold mine in the Yukon. He currently calls Thailand his home with a lifetime collection of his favorite books.