The travel and tourism sector grew more in 2018 than all other economic areas but one, adding a record of $8.8 trillion to the world’s combined Gross Domestic Product. From selling airline tickets to organizing tours, the time is ripe for the travel business. Once again, we’ve interviewed our compliance manager and are ready to provide you with a detailed response on how to open a merchant account for the travel industry.
Not only travel businesses demand enthusiasm but patience. To open a merchant account for travel, one should undergo a variety of procedures and documents obtaining processes. No worries. With the help of Ikajo International, your path will be smooth and pleasant. Let’s go!
Why is the travel industry high-risk?
The volumes in travel are so big, and the ticket sizes so large that it can lead to devastating financial losses for a payment processor. Let’s take a closer look at three main reasons why travel niche ranks high risk:
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A high rate of chargebacks.
Though there are last-minute travelers, the majority of people tend to book their tickets in advance. The research revealed that an average person plans a vacation about 60-90 days before the actual travel date. Not only it shows that the greater part of us are schedulers but also means that there are almost three months for something to get out of whack. From health issues to weather conditions, there are tons of reasons that cause cancellation. That, in turn, leads to chargebacks ranking travel among the most unstable businesses possible.
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An average check amount.
Do you remember why both banks and clients love nutraceuticals? The average check amount is as low as $49. That means that no one is going to jump through the hoops to get the reimbursement. That can’t be said about the travel industry. From honeymoon in Hawaii to a prestigious cruise, an average check amount in travel is $1000. Hence, if a chargeback or dispute does arise, it’s going to be for a vast amount of money. If the merchant is unable to reimburse the money himself, the credit card processor will be in charge of the situation. No wonder that many PSPs are reluctant to process travel businesses.
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Transaction volumes.
It is hard to imagine a B2C company that has as high transaction volumes as airline companies do. An international airline can make more than one billion dollars in ticket sales per year. What happens if this airline fails and goes bankrupt? The dramatic spike in chargebacks will follow immediately. As a result, the payment system provider will have to absorb the loss. If the airline has filed for bankruptcy protection, no money will be given back to the PSP. The good news is such risk is only applying to large travel companies. Small agencies and tour operators remain safe.
Range of documents to open a travel merchant account
Take a look at the basic range of documents one should collect to open a travel merchant account:
- Certificate of incorporation. This document proves that your company is a legal entity. Typically, state governmental entity or corporation issues a certificate. From three days to two months, the duration of obtaining a document varies from country to country. Keep it in mind when applying for a merchant account.
- Certificate of Incumbency (or similar document).
- Copies of valid passports with visible bearers signatures for all company officers and owners.
- Application. Handing over a filled merchant application form is a must. It helps PSP to understand the company’s structure, turnover, and geo-preferences.
Website requirements to open a travel merchant account:
To open a travel merchant account, you have to make sure that your website contains the following:
- Privacy Policy Page;
- Terms & Conditions Page;
- Name of the company in the footer;
- Contact us button with an email and phone number;
- Deposit & Refund Policy Page;
- Visa and Mastercard logos [in case you offer them as payment methods].
Two vital steps to open a travel merchant account
Despite all the risks and odds, these steps are increasing the chances of approval:
1. Get an indemnity.
To be short, get tourist insurance. Anyone who deals with travel has to be ready for unexpected. Jokes aside, you don’t want to lose your business due to aggressive gorilla attacking a tourist of yours. The indemnity has to cover death, injuries, and financial risks.
2. Prepare your processing history.
Processing history is a must for your application package. It is a clear sign of your company’s financial health. Low-risk businesses are required to send at least three months of credit card processing statements. That can’t be said about travel. Besides being high-risk, it is also a seasonal business. It usually experiences peaks and valleys. Thus, it is better to send a one-year worth credit card processing statements. The PSP will check your volumes, refunds, chargeback activity, and make a final decision.
Requirements for specific travel segments
There are particular requirements for different travel segments you should know about.
- Airline tickets
Certificate from IATA is a must for those selling airline tickets. Obtaining a license from Air Traffic World Organization is a must for those who are willing to sell airline tickets. You have to either sign a contract or get a special certificate from the IATA. Make sure that there are names, signature, stamp, and date on it. The regulations for IATA vary from country to country.
- Tours
Those travel agencies willing to sell tours with airline tickets should provide agreement with airline companies. This is a must to minimize the risks of marketing fake tickets.
What payment methods do travel merchants use?
It all depends on the geo-preferences of a specific business. From China to Africa, payment methods will vary. Thus, research to understand your target market specialties. Additionally, make sure to include fundamental payment methods such as Visa, Mastercard, American Express, Discover, DSB, China Unionpay.
Summary
Yes, travel-based merchant accounts are more difficult to approve than those considered low-risk. The high level of chargebacks and high average check amounts are to blame. The good news is that patience and strategy, combined with a full package of documents, will inevitably lead to success. Good luck with your business endeavors!
You might also like: 7 key travel payment trends of 2020
