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A journey in ProcessOut's mission control

Optimising Payment at Travel companies

by Gregoire Delpit on

Online sales are key for companies in the Travel industry. However, payments can be painful for Travel companies with lots of failed transactions. Most of the time, these failures can be explained by high amount transactions (a plane ticket or a full package travel can be expensive and create a conflict with the payment ceiling of the customer) or by the risk profile of the Travel sector and its transactions. Online payments, huge volumes, failed transactions… that’s an interesting topic! Let’s talk about it!

ProcessOut in a nutshell

ProcessOut is a payment monitoring & smart routing solution. It helps merchants monitor and optimize their payment performance (detect and decrease failed transactions, reduce payment fees…). Among our merchants we have numerous travel companies. Some are huge (above $1B in sales) and some are fast growing startups (a few millions in sales). Challenges and solutions differ between a $1B+ company and a startup, however there are some common patterns that explain why transactions fail in the Travel industry!

Challenge 1: the Travel sector is risky

Travel sector is considered as risky by PSPs and issuing banks. Let’s be clear: this has nothing to do with Travel companies’ behaviour or their business habits. This is more about the nature of the industry, the intrinsic risk of transactions and the behaviour of buyers in this industry.

Most of the time transactions have an high value (from a few hundreds to several thousands $/€) for a digital good (tickets are delivered by email) and for a service that will be delivered in a couple of months.

Those elements represent several risk factors for PSPs & issuing banks:

  • The first point of risk is the value: a high value transaction means more money at risk in case of a fraud.
  • The second point is the nature of the product: digital goods are more likely to attract fraudsters.
  • The third point is the delay between the payment and the delivery of the service: in this period of time, the payment provider will be financially liable if the merchant goes bankrupt before offering the service. (In this case, the customer might trigger a chargeback to recover its money for example)

Solution

As we have already explained in several blog posts, the more risky a transaction is the more chance it has to be rejected. To prevent this situation from hapening, it’s important to implement the relevant security checks during the payment flow and/or to route transactions with a risky profile to payment providers with a good track records in the Travel industry. Ping us if you want more info!

Challenge 2: Security checks

As we’ve just pointed out, to better asses the risk profile of their transactions, Travel merchants implement security checks & processes. To do so, they can use home made tools or third party partners (fraud scoring systems, 3D Secure, human review for risky transactions…). If those are very good options to improve the risk profile of transactions and thus increase the probability of the transaction to be accepted it also creates an additional potential point of failure. For example, 3D Secure have sometimes faced long downtimes; in this scenario it’s rather an issue because the customer cannot complete the payment.

Solution

Don’t get us wrong: Implementing security checks is a must for Travel companies. However, a proper implementation of these checks is key to be sure that the system can be disengage when a downtime occurs.

Challenge 3: High average baskets

As we’ve already emphasized in this post, most of the time transactions in the Travel sector tend to have high amounts. On top of negatively impacting the risk profile of the transaction, it also has an impact on the probability of success from the issuing card holder’s point of view.

As you may know, banks have implemented payment ceilings. It limits how much money can be spent by a customer using its card in a defined timeframe (day/week/month). As ceilings can be negotiated between the customer and its bank, it’s a bit difficult to point out a specific number. However, in average it can be between 500 - 1500$ per week and between 2000 - 5000$ per month. When the customer is above the ceiling, transactions are going to be rejected. For transactions above 500-700$ the probability to reach the limit is higher than for classic online transactions and those transactions have thus a higher probability to be rejected.

Potential solutions:

Several solutions can be implemented to tackle the payment ceiling challenge:

  • Trick 1: Some merchants decide to offer to their customers the option of splitting the payment in 3 or 4 times, some payment providers offer solutions for that and some even offer an insurance on top of that.
  • Trick 2: Another option is to directly retry the transaction if it fails. Some banks have implemented specific processes to prevent this (like a system that forces the transaction in case of many retries, kind of like an issuer discomfort) and if the transactions are retried several time in a short amount of time and with the relevant security checks (3D Secure…) it can be accepted.
  • Trick 3: Finalize the process and inform the customer its booking is pending and that it will receive a confirmation email even if the transaction hasn’t gone through yet. It gives the merchant a couple of days to retry transactions.
  • Trick 4: If the transaction is rejected, merchants can offer to its customer to pay with an alternative payment method.
  • Trick 5: Instant Payment can also be an option, its adoption should increase in the near future.

Challenge 4: Geography

When booking plane tickets, hotel rooms or any other goods related to Travel, customers can use foreign websites. Travel merchants tend to have customers from differents countries. This can be a challenge for their payment providers as more transactions tend to failed with foreign cards.

Solution

Merchants tend to offer to their foreign customers their preferred payment methods (ex. Alipay or WeChat for Chinese customers, iDEAL for customers from The Netherlands etc…) and to use local providers to process transactions. On top of being connected to local providers in key markets, merchants tend to implement a global payment provider connected to local acquiring channels in the different location targeted.

Rolling Reserve

Last but not least, when choosing your payment provider don’t forget to ask about the Rolling Reserve (also called “Deposit”). The Rolling Reserve is a way for payment providers to mitigate their financial risks. It represents an amount of money kept by the PSP for a period of time before being released. For example if you sell for $1m in October and if your payment provider retains 5% in a Rolling Reserve for 3 months you will only have $950k in October and $50k 3 months later. Thus, it will have an impact on your available cash.

Payments & Travel: set up a flexible payment infrastructure with relevant PSPs

As discussed in this post, payment can be a challenging for Travel companies. That’s why top players in the industry tend to hire dedicated people to manage and optimise their payments. At ProcessOut we’ve helped several Travel companies of different sizes to manage and optimize their payments. Some have dedicated payment teams and some don’t.

If you’re working in a Travel company and want to audit your payment performance you can use Telescope. It’s a free audit tool developed by ProcessOut. Telescope’s algorithms are made to analyze and benchmark your payment performance. They will analyze failed transactions, understand why and explain how it could have been avoided.

Also if you’re looking to implement or update your payment infrastructure to decrease failed transactions, integrate new payment options or providers or for any other reasons please drop us an email.