Travel Merchant Account Approval and Credit Card Processing
Travel spending is bursting at the seams. From record travel spending in the United States, to eco-tourism in South America and a global business environment that requires cross continental travel. There might never have been a better time to be in the travel business.
If you run a travel agency, a tour operator, or hotel operator then you are rightly excited by the opportunities swirling around you everyday. But if you are just starting out, you may have found that it can be very difficult to do one of the most important things to be able to take advantage of it: find a travel merchant account provider for your business, so you can accept credit cards.
If you haven’t heard the story yet, it’s likely that you are experiencing what so many others have gone through before. It goes something like this:
You have a few bank statements and a spotless track record as a young merchant: few chargebacks, great business plan and a decent to excellent credit score. And still, it’s difficult to find a company to process credit card payments. You’ve discovered – through research or experience – that despite it all, you operate in a high risk environment. But remember, all is not lost. With some negotiation and risk management strategies all of this can be overcome. It’s for this reason Durango Merchant Services exists, to advocate for you through this process.
So, what gives? Why is it so hard to get a travel merchant account in the first place?
If you’ve researched high risk merchant accounts, you may have discovered various factors that play into an industry earning that classification. To name a few:
- High Average Ticket Size
- Long Fulfillment Time Horizon
- High Chargeback Rates
- High Failure Rates
- Travel is expensive
- Travel plans are prone to change/cancellation
- Your customers want their money back now
- Travel is a mature/competitive business environment for entrepreneurs.
I think the best way to show how all these factors conspire to create a profile that makes risk managers nervous, is to tell a few stories. The story consists of two-parts risk and one-part overcoming.
Risk Scenario One:
Let’s say that a traveler booked a travel service 6 months in advance, the total package is $4,000.00. They pay in advance and the travel business receives the money. Then a week before the trip the traveler or a loved one gets sick or they cancel because of work and all the sudden want a refund. But wait, it’s a tight market in the slow season and the business already spent the deposit and have nothing to refund. The business, knowing the money will be there in a few weeks, delays. What happens next? We all know consumers can be fickle creatures, and all too often they’ll go directly to their card provider and demand a reimbursement instead of waiting. When this happens the business gets hit by the card provider with a chargeback and if they can’t pay it, then the processor must step in to fill the void, and they say, “Ouch.” Then the risk manager, says, “travel merchant accounts have a strong bite, we can’t let that happen without a strategy.”
Risk Scenario Two:
According to SBA data, 50% of businesses will not be around in 5 years, in the travel industry this may creep up into the 80 to 90% range. Of course, you know that this won’t happen to your company, but the risk managers have been burned enough to not trust their own grandmothers.
The competitive nature of the travel industry makes many merchant account providers nervous that if a business closes with outstanding obligations, then the disgruntled customers who lost their trip of a lifetime without a refund, will come calling or knocking on their doors seeking compensation. Many credit card processing companies choose the easy solution (for them) and deny a merchant account for the travel business. Luckily, Durango Merchant Services is not one of those companies.
You, I and the founders or every other business do our darned best to be in 10 to 20% that make it. Entrepreneurship is, after all, about risk and reward, living our dreams, and helping others live theirs. If we didn’t think we could succeed we wouldn’t try. That’s why we work hard to find merchant solutions for travel businesses. We believe a good portion of our clients will succeed and it’s a worthy investment to make sure the little guy gets a shot.
Overcome the hurdles, and secure a travel merchant account:
So, now that you know why travel industry merchant accounts are considered high risk, what can you do about it?
An important fact to accept out of the gate is that if you are a new company with a weak or non-existent record, you will be required to accept a highly managed relationship. If you have a solid record of risk, fraud and chargeback management, you will still be required to provide at least 6 months of prior financials to prove it. The sunny side of this is that if you can make it 3 years demonstrating that you know how to successfully manage risk and keep chargebacks and customer disputes at bay, trust will have been earned and you will have more leverage to negotiate a better deal, with better rates and less restrictions.
First, know what not to do.
A common temptation that businesses in the travel industry succumb to is to find a big tent processing company (you knock, they give you “something”), and understate the part about operating in the travel industry. Don’t do this. If these processors receive any signal that you are high risk, there is a chance that the merchant account will be terminated, which will cause problems in two ways. In the short term, customers can’t make easy, online payments and you lose revenue. In the mid-to-long term it puts an official “check” in the account termination column, which, like credit scores, will be disclosed on future merchant applications and make it more difficult to qualify for a merchant account.
Now let’s talk about what you should do.
The good news is that you are already half way there…well, technically you are here, doing it now.
Doing what? Finding consultants who specialize in the helping high risk merchants find a good home. Seeking out travel merchant account providers that pride themselves on integrity and search for lasting solutions, not the easiest or cheapest thing. Through decades of combined experience and a proven track record for service and reliability, we can confidently say that we are one of the best.
Here are a few common strategies that can be employed to help secure a travel merchant account for your company. Keep in mind that you won’t be required to do all of them. We will work with you to find the best one or combination of a few.
- Develop and put into action a strong and vetted fraud prevention plan. This may entail an analysis of your current fraud prevention processes and introduction to new tools that will help you detect and fight fraud. It will require that you are proactive in identifying and correcting potential weaknesses in your processing cycle.
- Purchase a financial failure insurance plan to bolster financial security.
- Build risk management into pricing by taking a small deposit upfront to secure the spot for your customer and charge the balance due 30 days before the trip starts.
In most cases, individually or together, the above actions will be enough to secure a travel merchant account. Sometimes, underwriters will see something that raises a red flag and reject an application. If this happens, we may try to negotiate with the fulfilling bank to accept a cash reserve or deferred settlement of payments. These aren’t optimal terms, but when circumstances dictate it, they can secure processing.
Durango Merchant Services is here to help secure your Travel Merchant Account
Our dedicated team has negotiated on behalf of more than 12,000 clients. We understand the back and forth and give and take of negotiating processing accounts for high risk merchants, including hundreds of travel merchant accounts.
We know that there aren’t always easy answers. But remember, there is almost always a way forward and if you can make it through the first 3 years with a good track record, life will become much easier and your business will be better for it.