When we think about businesses that financial institutions consider to be “high risk” in the context of payment processing, we typically think of industries such as alcohol and tobacco, firearms, credit repair, and adult entertainment. One that may not immediately come to mind, however, is the travel industry.
Even within the travel industry, there is a variety of diverse types of business, which typically includes travel agencies, tour operators, lodging, transportation, timeshare resellers, travel reservation websites, charters, and ticket sales, as well as independent travel agents. Each of these has its own unique challenges and requirements, but the ones mentioned in this article are, as a general rule, applicable in each of them.
We should point out here at the beginning that a business being considered to be “high risk” has more to do with the industry than a specific company. It is related to the degree of financial risk that is inherent in sales transactions in the particular industry. Many “high-risk” businesses actually have a long history of honest, sound, successful operation. Being a “high-risk” business creates certain challenges, but it is by no means a judgment of the societal worth of a business or a prediction of its failure.
So, what is it that makes a travel-related business “high risk” in the eyes of banks and other payment processors? Two of the most common factors that make a business high risk are fraud and chargebacks. Fraud occurs most frequently when higher amounts of money are involved. The possibility of getting a payout of $5.00 isn’t worth the risk of being sent to prison for most criminals. A travel business is more likely to have a transaction involving $1,000 than a transaction of only $10.00. In addition, online transactions create more opportunities for fraud, and travel-related business is increasingly being conducted via the Internet. If parties in multiple countries are involved, the risks increase even more.
A chargeback occurs when a customer requests a refund of money spent on a purchase. This happens when a customer disputes a purchase for one reason or another. Sometimes the reason is that a customer asserts that he or she did not make the purchase and that the card or the card number was used illegally by an unauthorized person. In the travel industry, chargebacks are typically due to a customer changing his or her mind, or feeling “buyer’s remorse.” As with fraud, this usually occurs with purchases that have a higher price.
Buyer’s remorse is more likely to occur after buying something for a couple thousand dollars than for a purchase of $5.00. If the customer didn’t spend much money on the purchase, it just might not be worth the bother of trying to get a refund.
Another factor unique to travel-related businesses is the fact that travel plans, especially those that involve higher prices, are usually made quite a long time in advance. Having a two or three-month wait between paying $3,000 for what you anticipate will be an exciting trip and actually taking that trip means that there is much more of a chance that your excitement will wane and you’ll start thinking that maybe you should have bought a new refrigerator instead. Sometimes, circumstances and priorities change, and the trip is no longer a good idea.
Fraud and chargebacks (even when completely reasonable) cost money for the merchant and for the bank or other payment processor. They have the potential to cost either or both a lot of money.
This makes it very difficult for travel agencies, etc., to open a merchant account at traditional banks and even most payment processing companies. The application process is longer, stricter, and more complex than for businesses in industries that are not considered to be high risk. However, the reluctance of banks and other typical payment processors to deal with high-risk businesses does not change the fact that your travel-related business has to have a way for customers to pay with credit cards/debit cards.
So, what can you, as the owner of a travel-related business, do to overcome these obstacles? First, of course, you can implement measures to reduce or eliminate risks. For example, you can reduce the likelihood of chargebacks by making return policies clear and easy to understand, but providing high-quality customer service, maintaining good communication with customers, and providing refunds before customers initiate chargebacks. This won’t necessarily change the fact that your business is considered to be high risk, but in the long run, it will save you money and help your business grow.
Ultimately, you will need to find a payment processor. If traditional banks won’t provide services to you, you can utilize a payment processing company. The problem with that solution, however, is that most of them, such as PayPal, Stripe, and Square, are also reluctant to work with high-risk businesses, sometimes specifically because of the risks, and sometimes simply because they’re not equipped to deal with the special circumstances and needs of high-risk businesses.
There are, however, payment processors that are equipped to accommodate high-risk businesses. The ideal is a payment processor that specializes in high-risk industries. There may even be some that have a solid track record in your industry.
The payment processor should have the equipment and software to provide your customers with a payment portal and handle not only the standard aspects of payment processing but also those that are unique to your industry, as well as unexpected occurrences. It should have the ability to make sure that you will receive uninterrupted and accurate credit card payment processing.
Be honest and open about the nature of your business. This will be a partnership of sorts, and neither you nor the payment processor will benefit from misrepresentation of what is needed, what is available, and what problems are foreseen merely to acquire a merchant account.
There are other benefits as well to utilizing a high-risk payment processor. Ordinarily, high-risk merchant accounts for travel-related businesses do not utilize purchase price caps. This makes it easier for customers to make purchases. In addition, with standard merchant accounts at traditional banks, an increase in chargebacks often results in the account being closed suddenly, without warning. That leaves the business without a way to process payments, which means that the business will have no money coming in until a new merchant account can be obtained. In the case of a new business, that can be fatal.
On the other hand, to a high-risk payment processor, chargebacks are a given due to the nature of the travel industry, so there is a much higher tolerance for chargebacks. This means that it is unlikely that your account will be closed suddenly, without warning. Some payment processors also provide chargeback management services to fight chargebacks that you believe are illegitimate.
Implementing measures to limit chargebacks is always a good idea, but keeping chargebacks to a minimum will do much to keep your account in good standing, whether the account is at a traditional bank, with a popular payment processor, or a high-risk payment processor.
A high-risk payment processor won’t necessarily offer accounts to every high-risk business simply because it asked for one. Specializing in high-risk industries and being more willing to deal with high-risk businesses does not mean that the payment processor doesn’t care about risk or doesn’t take the number and degree of risks into consideration. If a high-risk payment processing company is blind to its own risks, it won’t be processing payments for very long. It does, however, make it much easier for your high-risk travel business to open a merchant account.