Running an online travel agency means handling a huge number of transactions with very small margins. Navigating card surcharges can be a serious problem – but it can be done, says Suhail Uddin, Business Development Manager at Ixaris.
Card surcharges have a way of making customers feel ripped off whilst for agencies, says Uddin, shouldering a 2% or more charge can eat too far into margins to be viable. However, since low cost carriers must offer at least one form of surcharge-free payment in order to advertise their fares, a savvy agency could, until recently, avoid costs by being careful with their choice of payment methods.
For many low cost carriers, the surcharge-free option was Mastercard, making prepaid Mastercard the payment type of choice for many online travel agencies. Depending of their payment provider, some shrewd companies were even able to take a cut of the Mastercard transaction fee. But, last month, a number of low cost airlines, including Ryanair and EasyJet, decided to start imposing surcharges on MasterCard prepaid transactions.
This has left many online travel agencies unsure of how to proceed. But, says Uddin, it doesn’t have to be a disaster.
Firstly, not all low cost carriers levy the surcharge in the same pay. Whilst Ryanair will add a charge to all types of MasterCard prepaid cards, Easyjet only adds fees to corporate cards, meaning that providers could avoid the charge by using prepaid consumer cards to pay. For those airlines adding blanket charges to all types of Mastercard, Visa Debit and Electron cards may well be a better option, even taking into account the fees charged by payment providers to process these transactions. There are, however, some airlines now charge an administration fee to processes all payment types, nulling any benefits of paying by Visa.
In these cases, says Uddin, Mastercard prepaid remains the best option. Although this means resigning themselves to a surcharge fee, agencies may be able to recoup some of their costs by sharing interchange revenue with their payment provider.
“Given the recent changes in the way several LCCs treat surcharges, OTAs now need to have the facility to access a range of Visa and MasterCard card types in order to accommodate the various surcharge options across different LCCs, and safeguard against future changes,” concludes Uddin. “As well as looking at available card types, OTAs should also consider the number of currencies, functionality and flexibility of a given payments provider if they are to maximise their profit margins in a challenging business environment.”
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