Payment processing for the travel industry

Customer experience is a vital aspect of doing business in most industries.

A critical part of that experience is making sure customers enjoy seamless payments. Quick and convenient payments will help retain and grow your customer base.

The travel and mobility industry is no exception. In fact, it has its own unique payments challenges, as it is considered a high-risk business.

In this article, we’ll discuss the payments challenges and solutions that are likely to be faced by a travel business, and explain what payment processing is, and how it actually works.

Overview of payment processing for travel industry

Despite some predictions, the rise of the internet did not wipe out traditional travel agents.

It did of course change the travel business dramatically. Websites for booking flights and hotels quickly emerged as new competitors.

But travel agents still exist by offering a more personalized customer experience. They do however face competition from a multitude of online travel agencies (OTAs).

The benefits of travel agencies

One of the main reasons travel agents are still in business is convenience. They save customers time and money, and offer impartial advice.

Travel agents can offer discounted prices for services because of the volume of business they bring. And they have knowledge and networks of hotels, tour operators, etc.

It's difficult to quantify exactly what these savings in time and money are for customers. But there are estimates.

For example, a study by the American Society of Travel Agents (ASTA) reported that travel agencies saved US customers an average of $452 and four hours of planning per booking.

Travel has a complex profile

Despite their turnover and continued high customer demand, travel agencies are deemed high-profile merchant accounts by payments providers.

This is partly a consequence of the long lead times between booking and travel.

All payments providers want to reduce chargebacks. But these become more likely and have a bigger impact when high value transactions take place over a large window of time.

Statistics show that majority of holidays are booked between four and twelve months in advance. This leaves plenty of time for costly cancellations and chargebacks.

Volcanos, pandemics, pilot shortages, and other unpredictable events contribute to this. But so do more common events, too, such as missed flights, breakups, poor health, and general changes of plan.

Payments are crucial but expensive for the travel industry

So, travel agents are classed as substantial volume, large ticket, or high-profile merchant accounts by payments providers, despite the consistent high demand for their services.

This means costs for accepting payments in the travel business are relatively high, whether by credit or debit card.

Consumers have come to expect payments that are ever more simple, convenient and frictionless.

This puts pressure on the travel industry to keep up with the latest payment services and solutions. This can be especially important as new, tech-savvy online travel-related services are competing for the same customers.

But there are other unique challenges in securing merchant accounts for travel businesses, too.

What challenges does the travel industry create for payment processing?

1. Multiple payments & payment methods

Booking holidays or business travel has many associated costs. This includes airline tickets, taxis, travel insurance, accommodation and more.

Even all-inclusive holidays offered by cruise lines require multiple payment solutions to be available. These could be for upgrades or other add-ons for customers during their holiday.

To process these, merchant services for travel need to provide a number of payment options. Debit and credit card processing is essential, for example, as are online electronic payments.

And travel agency payment processing has to accommodate multiple merchant service providers in multiple markets.

For example, merchants operating in China need to adapt to the country's unique payments ecosystem - such as integrating with Alipay and/or WeChat Pay.

A travel agency dealing with non-domestic currency, should sign up with a payment service that is equipped to deal with cross-border payment solutions.

Booking software

It is common practice for travel operators to integrate their chosen payment gateway directly into their website, helping to reduce processing fees.

However, if budget allows, using bespoke booking software with its own customer relationship management (CRM) system is the best option.

This is especially true when dealing with large volumes of bookings and payments through your merchant account.

2. High-value payments & security

Travel agency payment processors and other businesses in the travel sector often deal with high-value payments.

This means trust is essential - customers want security, especially when paying a lot of money for something.

It also makes convenience even more important. A problem or delay with a high-value payment will likely be more stressful than with a smaller one.

As a minimum, travel agents' payments must be carried out using a secure, Financial Conduct Authority (FCA) compliant payment processor. But they can go further than this by choosing a payments provider with

3. Multiple currencies

There are currently over 150 different currencies being used in around 200 countries globally.

So, payment services for a travel provider therefore must be able to accommodate as many currencies as is possible.

This is naturally be complicated by fluctuations in currency value, transaction fees, and payment delays.

4. Multiple languages

After Mandarin and Spanish, English is the third most common native language in the world, with approximately 400 million speakers. And approximately 1.5 billion people around the world have English as a second language.

So, that's a lot of potential customers and suppliers who can't speak English, or can but might prefer to use their native language.

The technology used by online travel agencies, including their payment options, should therefore be able to automatically detect a customer's location, relevant currency and preferred language.

This will maximize international sales for any travel agent through its ability to process card payments for different markets.

Step by step: How does payment processing work?

When a customer makes a purchase, the payment is made with the card at the point of sale. This can be at an online checkout on a travel website or app, or at card terminal in-store.

For the consumer, the whole transaction appears to take seconds. However, the process behind the transaction is more complicated…

Let's look at this in more detail. But first, let's introduce some basic components of the process.

What is a payment gateway?

A payment gateway is a secure network that provides a bridge between the business and its customers. It ensures that secure payments are sent and received by travel operators via their merchant account.

Operating in a high-risk industry means that it’s crucial that travel agents use a payment gateway that is PCI-DSS compliant and supports all of the currencies it operates with.

What is a payment processor?

Payment processors are institutions that act as mediators between merchants, customers, and the financial institutions that process transactions.

They fulfil a number of steps required to complete transactions, including authorization, funding, and settling.

There are many payment processors out there. Including, of course, us - Nuvei (see below, 'Nuvei's solution').

Phase one: Authorization

To begin with, the travel merchant (travel agent) will send an authorization request for the transaction to their chosen payment processor, who will carry out the following steps:

Step 1: Submit transaction to issuing bank

The payment processor will submit the transaction to the card network connected to the issuing bank.

What is a card network?

A card network (also known as a card association or bank card association) is a bank or financial organization that licenses and regulates credit cards and processes their transactions.

Well-known examples of card networks include:

• Visa
• Mastercard
• American Express
• China UnionPay

What is an issuing bank?

An issuing bank (also known as a card issuer or issuer) is a member of a card network that provides (/issues) payments cards directly to consumers.

Well known examples of issuing banks include:

• Royal Bank of Canada
• Wells Fargo
• Bank of America
• Chase

Step 2: Issuing bank authorization

The issuing bank will either accept or reject the transaction based on certain criteria, such as the card holder's credit or signals of a fraudulent transaction.

Step 3: Sending Approval/Decline to merchant bank & merchant

The issuing bank then sends either an approval or declined status back to the travel agent's bank followed by the merchant itself.

Phase 2: Settling & funding

Once the authorization process is complete, settling and funding takes place. This is where credit for the transaction is deposited into the travel agent’s account.

The travel agent will send an authorization request to the payment processor, who forwards the details to the card network.

The card network is connected to the issuing bank therefore the issuing bank will receive the transaction details and then carry out the following steps.

Step 4: Interchange fee charge

The issuing bank will charge the travel business an interchange fee.

This is a transaction fee that travel businesses pay issuing banks for each customer payment. It covers the handling and associated risk of the payment.

Step 5: Issuing bank sends merchant bank payment

The issuing bank then transfers the relevant amount (i.e., how much the customer has paid the travel agent) to the merchant bank, minus the interchange fee.

Step 6: Merchant bank settles with merchant

Finally, the merchant bank will then transfer this final, interchange-fee deducted amount back to the merchant account of the travel agent.

The Nuvei solution

At Nuvei, we offer a secure, globally-connected platform that offers digital-first touchless payments.

Our modular technology makes it easier to stay on top of local markets and customer preferences. That means you can tailor your travel businesses' payments with access to over 700 different payment methods.

Conclusion

Not being able to quickly and conveniently process high value transactions needed for the travel industry will lose customers for travel merchants.

While payment processing for the travel industry works in the same general way as it does elsewhere, it has its own unique challenges.

In general, a travel agent or tour operator is considered a high-profile merchant account by payments providers. This is because it deals with high value transactions subject to more chargebacks and refunds.

So a travel agent merchant account should use a PCI-DSS compliant payment provider to securely process their payment transactions.

Travel agents also need to provide multiple payment methods to keep pace with consumer expectations. To create the best possible chance of success, choose payment solutions that offer the highest levels of convenience and the optimal customer experience.