Why Your Travel Business Could Be Considered High-Risk and What You Can Do About It
When it comes to all types of companies, their business merchant services help them process payments, obtain merchant cash advances, and protect their financial interests. However, some business types often do not get the same rates and advantages as others, based strictly on their industry. Specifically, travel-related businesses, such as travel agents, cruise ships, time shares, and tour agents often struggle to get a merchant bank account, and even if they do, the rates and terms are rather severe. If you plan to open and operate a travel related business, you need the right help in your corner, as well as information and strategies to help your business operate seamlessly and flourish successfully. Let’s start by exploring why the travel industry is targeted by financial institutions and what it means for your business.
Why do they label travel industries as high risk? The answer is complex, starting with the fact that the financial transaction between the business and customer occurs long before the delivery of the actual products and/or services. This time gap increases the likelihood of chargebacks and payment disputes. Think about it this way—when you purchase and item or service, the exchange between the delivery and payment is nearly instantaneous, with the exception of some e-commerce businesses. However, when it comes to travel, so many unforeseen events can occur between point of sale and delivery. Perhaps the customer has something come up and can no longer travel, or a natural disaster has made their event impossible to attend. Likewise, some travel businesses are the facilitators between the customer and a third party, such as an agent booking a vacation excursion for a family. If the third party somehow fails to deliver, the travel agent is sometimes left shouldering the aftermath. Regardless, the customer wants their money back, and they want it back now. Even if you have built in provisions in your service contract concerning refunds, a dissatisfied customer is likely go to their card provider and initiate the chargeback. Unless you have the fluid cash to comply, then the card provider must cover for you, and that hurts your financial standing in a big way. Ultimately, high chargeback rates are one of the biggest contributing factors to classifying a business as high-risk.
Another factor that tends to skew travel businesses as being labeled high-risk is the high average ticket size. When so many of your transactions are high dollar, both you and the financial institution stand to lose more when something goes wrong. Travel is expensive, and as such, fraud attempts can be more difficult to detect. The technology and expansion of e-commerce is definitely felt in the travel market, and many transactions are completed using online payment services, which further adds to the risk of data breaches, hacking, and fraudulent charges.
Beyond these factors, high-risk often comes with any new business, especially those in the travel industry. While any new business faces an uphill battle to succeed in a competitive market, travel-oriented business contend with such a broad range of competition. From brick-and-mortar locations to the proliferation of e-commerce and convenient apps, consumers have hundreds of options when choosing service providers. As such, financial institutions do not see you as a safe bet for long-term profit. They assess risk based on how long a merchant has been in business, their financial wherewithal, and profitability.
What Does it Mean for a Merchant Account?
Unfortunately, many US banks are hesitant take on a travel related merchant account, and leaving many merchant account companies struggling to meet the needs of their clients. However, many experienced companies can still help you regardless of your business model. Whether you need an internet merchant account, or merchant account solutions for a diverse business operation, the right payment processing provider can be a powerful ally in getting the best deal possible. Ideally, you want a company that can deliver you the ability to accept high ticket sales, analyze your travel business to help reduce risk and lower payments, provide programs to keep your chargeback ratio low, and get the best rates available. They should focus on ways to increase your business’s bottom-line while also providing convenient payment methods for the travel business industry, including features like the ability to accept multiple currencies.
The right provider will also understand your business, and that you need the ability to process payments anytime and from anywhere, with the faith that you are using cyber security that meets industry best practices. As stated earlier, the nature of these transactions, as well as their tendency to be high ticket size, put them at higher risk. You want a provider who has both the experience and technologies in place to give you the safety that your business needs.
As you begin to research merchant card processers, you need to be aware that that the application and review process may be more extensive and in-depth than more low-risk business models. You will want to have your business plan and financial documents in order, and feel confident that you can demonstrate the sound nature of your business. Gather your financial statements and ensure that you can articulate your business’s operations and objectives in a way that anyone can understand.
Finally, as you examine prospective merchant account providers, you need to do your own research on each potential company. With many reputable companies that strive to be advocates for their clients, far too many others are predatory entities who take advantage of trusting entrepreneurs. High-risk industries can be especially vulnerable because they have so few choices and can be swayed by offers that are definitely too good to be true. If a prospective provider is offering assurances without ever seeing your financials, or makes statements like “we approve most accounts,” be wary. When you do your research and prepare your own set of questions, you have the best chance of finding the right match for your business. In other words, while your provider will approach you like a job interview candidate, so too should you toward them. Knowledge, patience, care, and research will help you get the right support and services for your travel business.