Why Banks Consider Travel a Risky Business
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Loading ...Over the years I’ve worked with dozens of travel agencies and tour operators who have tried and been unsuccessful at getting a merchant account which allows them to accept credit cards for payments. In this credit driven world, it can be difficult to do business if you can’t accept credit cards for payments, especially on large travel related purchases. Some have come back to us in frustration to try and determine why they are being singled out by the banks and merchant processing companies. Many processors categorize travel with gambling, pornography, and online lotteries. For any tour operator or travel agent, this is equivalent to categorizing their business as illegitimate. So why is travel considered a prohibited business?
Travel is considered high risk because of several factors. Risk is based on the likelihood of a chargeback, the size of the charges, the business history, and the method in which payments are accepted. In the case of travel, cancellations and therefore chargebacks are a routine part of doing business. The problem is that when you combine the probability of a chargeback with the average size of a travel transaction, you can have a serious liability. For example, a travel agent sells a block of one hundred packages to Mexico, each one valued at $1000. The agent accepts credit card payments for all one hundred packages about three months in advance of the trip. During the trip, the plane has a mechanical failure and all one hundred passengers have to cancel. The agent must now issue refunds totalling $100,000 three months after receiving the money and paying the tour operator for the block. Given the number of passengers that travel every single day, this type of scenario is not all together unusual.
So how can you get a merchant account if you are tour operator or a travel agent? If you are a small travel agency or an independent travel agent you may want to consider going through a host agency or partnering with an agency that has established a merchant account with a bank. If this is not an option then you may still be able to get a merchant account, however you will most likely need to put down a fairly large deposit to protect against chargebacks.
If you are a tour operator, then you are in luck. As long as you don’t sell airline tickets or hotel rooms from other providers, then you are considered to be a lower risk merchant. There are a few merchant providers that are even specializing in the vacation property, small accommodations, and tour operators. One such provider is Payment Processing Inc. (PPI) which offers a merchant account package specifically for small tourism companies. Other options that may work include using Paypal, Cronopay, or Beanstream.
When it comes down to it, there are options that available to just about everyone interested in accepting credit cards. Your best chance of finding a good rate and a strong long term partner is to contact a recommended provider and do your homework.
Links of Interest:
Credit Card 101
Request for more information from PayPros
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