Why travel agents (and airlines!) should jump aboard the VAN wagon
December 5, 2018
If you work in travel and tourism, you’ll no doubt have heard at least some discussion around the acceptance of payments between airlines and travel agents, linked to IATA’s recent Transparency in Payments (TIP) initiative. TIP aims to address the changing face of payments – most notably by encouraging airlines and agents to agree payment methods. Importantly, no form of payment is prohibited.
This initiative has been further propelled into the spotlight by the World Travel Agents Associations Alliance (WTAAA). It’s calling for a more holistic view of payment options across the travel industry. It’s great to see a global industry body such as WTAAA advocating the value that cards bring to the travel value chain. Especially, since every form of payment has its own cost, benefit, and risk profile for every part in the value chain.
Indeed, I want to wade into this discussion to highlight that there are many virtues of using eNett Virtual Account Numbers (VANs) for all types of travel organisations. Here are just a few that airlines and other stakeholders in the value chain may not be aware of:
Get paid faster
Every company aspires for a shorter settlement cycle. It means faster and smoother cash flow, as well as less risk from funds being trapped or unavailable. Currently the typical settlement time from ticket issue to settlement via BSP Cash is around 17 days*. eNett VANs offer shorter settlement time for airlines of between two to four days. For an airline with 8% Weighted Average Cost of Capital (WACC), this is a saving of around 30bps in hidden payment costs.
Reduce chargebacks, fraud, and ADMs
eNett VANs achieve near-zero** chargebacks toward airlines, leading to significant reductions in costs and effort associated with ADMs. Fraud rates from direct sales by airlines have been reported at 1.2%, with very high indirect costs. However, the fraud rate for eNett VANs payments to airlines is virtually zero*. Further, the impact of credit card data breaches at airlines is minimised if payments are being made with eNett VANs, because end customer data from travel agencies isn’t exposed (since it isn’t passed through) and every eNett VAN uses a unique card number. eNett VANs can also be locked down via up to 10 parameters to drive down fraud risk.
Reach more customers
Although travel agencies focused on specific geographic markets are usually well placed to accept preferred customer payment methods, these methods may not be readily accepted by airlines or could be costly to integrate. In these cases, travel agencies can use a ‘merchant model’ and accept payment from customers, before making a separate payment to airlines. Customer and market factors mean travel agencies outside of the USA typically prefer a merchant model, where they are still agents of the airline, but become merchants of record for the payment from the end customer. Travel agencies typically prefer to pay suppliers with eNett VANs and therefore may be more willing to list airlines that accept them.
Enjoy stronger partnerships with travel agencies
eNett VANs protect all parties against adverse events and offer operating efficiencies. For example, airlines are effectively creditors to travel agencies and can incur losses if agencies default. This happens despite efforts from IATA and airlines to establish, monitor, and enforce credit limits on travel agencies. Credit management takes time, effort, and investment, and may also limit sales in peak periods and for high growth travel agencies. There is no need for credit management when travel agencies pay airlines with eNett VANs, because payments with VANs are guaranteed. Additionally, eNett VANs can help strengthen agents’ banking and shareholder relationships by eliminating their concerns about travel industry default risk.
Simplify payments processes and reduce costs
Accepting eNett VANs as a form of payment can lower airlines’ payment processing costs, because accepting this form of payment is just like accepting any other Mastercard. In fact, airlines have been paid with eNett VANs since 2011. Leveraging existing processes used for Mastercard acceptance can lead to less reconciliation effort and less general payment handling costs after acceptance, which can occur with other forms of payment.
In a time where the payments landscape is constantly changing, all stakeholders need to be open minded about the benefits that various payment solutions can bring. At eNett, we are committed to working with our travel agency customers, airlines, and other stakeholders, to provide payment solutions that benefit all participants in the travel value chain.
We welcome the opportunity to add value to discussions with major airlines and travel agencies.
* eNett analysis, based on typical settlement cycle times.
**Rate of fraud related chargebacks by number of transactions with eNett VANs Q1 2017-Q2 2018 when paying airlines. Exact rate in that time was 0.000003% or 1 per 30M transactions. The number of eNett VANs payments to airlines during the specified time period was not 30M. Total non-supplier default related chargebacks in the same period was 0.0013% or 1 in 80K transactions - most due to duplicate processing.
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