Revenue in the travel and tourism industry is expected to reach $175.4 billion in 2022 . The market was down significantly at the peak of the COVID-19 pandemic, but figures are already returning to pre-COVID-19 levels, even with restrictions remaining in place in much of the world. There is room for growth in the market. There are also some challenges that are faced by high-risk businesses, including travel businesses. One is making arrangements for credit card payment processing. Following are some tips for getting your travel business a merchant account.
What Makes Travel Businesses High Risk?
There are a variety of reasons that traditional banks believe that travel businesses are high risk , and are therefore reluctant to provide merchant accounts to those businesses. In general, the main reasons are common to most high-risk businesses . Two of the most common are chargebacks and fraud. Certain factors make travel businesses particularly susceptible to these risks.
As you are likely aware, chargebacks occur when a customer demands a refund of money spent on a purchase, and contacts the bank directly to reverse the relevant credit card charge. Typically, the customer either claims that the product or service was not as promised or 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, however, chargebacks are more often due to a customer changing his or her mind, or feeling “buyer’s remorse.” Buyer’s remorse is more likely to occur when the customer has bought something for a large amount of money than in the case of a purchase of $5.00, for example. If the customer is dissatisfied with the product or service, but it didn’t cost much, he or she may not feel that the time and effort to get a refund is worth it. Travel businesses handle airline tickets, hotel booking, reservation services, and trip planning, so they deal in higher amounts per transaction, making chargebacks more likely.
As with chargebacks, fraud (including chargeback fraud) usually occurs with purchases that have a higher price. The possibility of getting a payout of $5.00 isn’t worth the risk of being sent to prison for most criminals. In addition to the higher transaction prices, travel-related business is increasingly being conducted via the Internet. The anonymity and inability to check the physical card and other factors mean that online transactions present more opportunities for fraud. If parties in multiple countries are involved, the risks increase even more.
Fraud and chargebacks (even when completely reasonable) cause problems for the merchant and for the bank or other payment processor, and have the potential to cost either or both a lot of money.
Mitigating Chargebacks and Fraud
Naturally, this makes it very difficult for travel agencies, etc., to open a merchant account at a traditional bank. Even when the bank is willing to provide a high-risk business with a merchant account, the application process is longer, stricter, and more complex than for businesses in industries that are not considered to be high risk . Usually, the bank will impose lower limits on the business’ chargeback rate, and have a lighter trigger on closing the account if the rate is higher than the set limit, even slightly.
Because chargebacks and fraud are the most common reasons for being denied a merchant account or having it closed, that is likely where you should begin . You can reduce non-fraudulent chargebacks by ensuring that your customers understand what exactly they are purchasing and what fees, etc., are included in the final total, and by having a refund policy that is both reasonable (or even somewhat generous) and easy to understand. In the long run, it will be worth it to spend a little extra time making sure that the customer understands.
Clarity and Communication are Your Allies
Giving customers more time to make a decision about the purchase may sometimes result in a decision not to make the purchase. However, a decision made in haste or on impulse is significantly more likely to result in a chargeback and the accompanying extra cost than one that is made after more thought. Travel plans are often made far in advance, possibly months before the actual trip. That gives the customer a lot of time to develop buyer’s remorse and initiate a chargeback .
A reasonable and clear refund policy will not only help your case in a dispute, but it will also increase the likelihood that the customer will go to you to request a refund rather than going directly to the bank to initiate a chargeback. The more comfortable the customer is with you and the more confidence the customer has that you will address their concerns to their satisfaction, the more likely it is that you can avoid a chargeback. A positive experience with your business may even convince the customer to stick with the purchase, or come back to you in the future to make a purchase that he or she is more sure of.
These measures can also help prevent fraud . Fraudsters thrive in anonymity and love ambiguity. When terms, conditions, requirements, and procedures are spelled out clearly, fraudsters will have less leeway, and therefore fewer places to hide. Making the process easier for your legitimate customers can at the same time make things more difficult for fraudsters . As with criminals in general, fraudsters prefer a safe and easy path, and more often than not will abandon their plans if it seems like too much of a bother and too much of a risk.
High-risk Payment Processors
There is a good chance that you are reading this right now because you have already been unsuccessful at getting a merchant account at a traditional bank or payment processor . If that’s the case, a high-risk payment processor is probably what you need. Because high-risk payment processors specialize in providing services to high-risk industries , they have the knowledge and experience to help your business get and keep a merchant account.
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.
Traditional banks often set purchase price caps as a way to mitigate their own risk. Although that is understandable to a certain degree, the problem is that it can make it difficult for your customers to make purchases. One benefit of utilizing a high-risk payment processor is that high-risk merchant accounts for travel-related businesses usually do not utilize purchase price caps. Naturally, this makes it easier for your customers to make purchases.
A Better Choice to Begin With
As mentioned, you may be able to find a traditional bank that is willing to provide your business with a merchant account. Even then, however, the bank will still see your business as high risk. The bank will set higher requirements to keep the account. For example, the maximum chargeback rate will be lower than for other industries. “Success” at convincing a bank to provide you with a merchant account may end up not seeming like much of an advantage. If your business is in a high-risk industry, your business might benefit from using a high-risk payment processor from the start .
A high-risk payment processor such as Zen Payments specializes in payment processing for high-risk industries, and understands the payment processing needs and challenges of the travel industry. We have the experience and expertise necessary not only to get you a merchant account, but also to make the payment process easier for your customers and for you.
When choosing a high-risk payment processor, be sure to ask as many questions as necessary until you’re satisfied with the responses and clear on what you can expect and what will be expected of you. Our team at Zen Payments would be happy to speak with you and find ways to help your business prosper, so please don’t hesitate to contact us .
Table of Contents
- - What Makes Travel Businesses High Risk?
- • Mitigating Chargebacks and Fraud
- - Clarity and Communication are Your Allies
- • High-risk Payment Processors
- • A Better Choice to Begin With