IT’S AN eye-watering statistic. The travel industry’s exposure to chargeback risk based on supplier insolvency, at any time, can be as high as 20% of Total Transaction Value (TTV). This means that anywhere up to $13.8 billion is on the line for payment facilitators such as banks.
According to a 2020 submission by the Australian Travel Industry Association (ATIA) to the Reserve Bank’s Review of Retail Payments Regulation, electronic payments make up 89% of all transactions made by Australian travel agents, meaning only 11% is facilitated by cash, cheques or other means.
Importantly, travel is one of very few products in the global economy that is purchased on average 100 days out from “consumption” or before the product is actually delivered. Whether that’s a flight, hotel, tour, cruise or anything else travel-related, it’s almost always booked and paid in some form well in advance, with monies quickly transferred to the end supplier.
In other words, after a traveller pays a travel agent for their holiday, there’s an awfully long time that the next business in the chain is holding yours or your clients’ money.
While the absolutely overwhelming majority of end suppliers are reputable, solvent, trustworthy and maybe even insured for revenues taken, banks don’t see that potential $13.8 billion chargeback bet as one worth making.
It’s not a new development. Banks have long typecast travel as the red-headed stepchild of their economic portfolios. It has been that way since Ansett Australia fell out of the sky in 2001. Numerous high-profile failures since then have done nothing to cool that assessment, and the recent shambles named Bonza and Air Vanuatu have only turned up the heat for banks, with many chargeback claims received from aggrieved customers.
For some agencies, it all came to a head when their banks decided some sort of financial cushion was needed in order for them to continue sleeping with that bomb under their pillows and to continue being that payment intermediary. Demands of up to $500,000 were made, leaving many agency owners with no option but to send their electronic merchant terminals back and find a new way to process client payments.
ATIA’s submission spells it out.
“This risk is unique to the travel industry because even though, in almost all cases, the travel agent will have fulfilled their obligations to the customer by booking and paying for the product, the travel agent will remain exposed to the risk of being required to repay the customer (via the chargeback system) monies on-paid to an end supplier who is not able to perform their obligations.”
This has created an opportunity for dedicated travel industry payment facilitators to step in and, with careful due diligence and robust financial regulation, take on that calculated risk and provide merchant terminals and payment structures designed specifically with travel agents in mind.
CVFR Payments Group CEO, Ram Chhabra, told travelBulletin that banks are looking too broadly and don’t understand the agent profile.
“Is the agent booking more domestic or more international? Is the agent booking tier-one carriers or are they booking more low-cost carriers?” Chhabra said.
“Because we’re specialised in travel, as a business group, we get to take the time to understand what the agent’s profile is and better understand the agent’s risk.”
For CVFR to take on that risk, they look at an agent’s client profile, the products and destinations they’re booking, and whether they’re profitable.
“We’re happy to provide the agent a virtual payment link or physical terminal without a bond, because we’ll take that understanding of what risk profile the agent has,” Chhabra added.
For a few years prior to the COVID-19, ATIA put its money where its mouth was by operating its own chargeback scheme which would recompense participating agents in the event of supplier failure, providing them with the funds needed to refund their client more quickly. This scheme was suspended in May 2020 while the industry grappled with the pandemic.
“It’s a systemic issue which we need to address as an industry,” said ATIA Chief Executive, Dean Long.
“And because credit card or debit payment is our payment offering of choice for consumers, the card schemes have done a really good job in building some consumer protections into that through chargebacks, but it does mean that there’s an unfair risk put into the agent and agencies due to the fact that they don’t hold the funds,” Long told TB.
“There’s always an element of risk, no matter what you do,” Chhabra added.
“It’s a case of how you minimise that risk, and you only minimise that risk by discerning the agent’s profile, and that’s what we’re doing.”
