Hotels are paying the price for inadequate security, and largely further enriching the OTAs in the process. We would like to expose one of their latest endeavours which has raised commission costs by 2% for hotels accepting Virtual Credit Cards.
Hotels function with very clearly separated departments. The Sales department who signs sales contacts and agrees to the OTA commissions. Secondly you have the accounting department who are the ones who receive (and pay for) that hefty Booking.com bill that comes every month without fail. Often there is a disconnect between these 2 departments, and this is causing a lack of understanding why credit card commissions are rising faster than ever. We would like to explain why some OTA’s have suddenly started using Virtual Credit Cards, and how this is eating into the hotel’s profit margins even further.
What do we know?
We began our journey of creating a 21st Century Property Management Solution with the idea that we were creating our system for a world which does not distinguish between an offline world, and an online one. At the heart of a PMS is the ability to take payments, which in hotels are mostly by credit cards. In 95% of hotels today, payments are still taken manually on the traditional credit card terminals, making the process slow and definitely not risk free.
As we started thinking out our future-proof solution, I remember us sitting with the regional director of one of the largest payment facilitators in the world and reaching an impasse as they couldn’t understand that we wanted our online payment gateway to be the same as our offline gateway (they had just bought an online gateway, but couldn’t understand why we would ever want to merge the two worlds). More shockingly, they couldn’t understand why we wanted assurances that there would be no price differences (surely the online world is more risky, right???). We left the meeting thoroughly depressed as we couldn’t quite understand why anyone would still want to offer anything other than an omnichannel solution in 2013.
Fast forward to now, we have found perfect partners for our payment vision, but we still find the thinking still permeates the industry. In the PMS world, we find it shocking that there are still PMSs that come without an online payment gateway integration, considering how most of the business in the hospitality industry solidly comes from online channels. But because of this, hotels are still footing the bill as they are then forced to accept halfway measures which come with a lot of hype and not much by way of added security: the Virtual Card.
What makes the Virtual Credit Card so great?
Hoteliers who work with Booking.com have always had challenges with bookings that came with credit cards and the card simply is not chargeable. So if a guest does not show up, you have lost this revenue, and you cannot claim it from the OTA, as it was the responsibility of the hotel to check the card prior to arrival and report it. Logic or not, this is the reality, and Booking.com will still charge you commission on bookings if you forget to tell them about the dysfunctional card.
This problem was solved by Expedia long ago, because they take payment from guests directly… hold on to the money (sometimes for several months), and at the time of check-out they pay the hotel. This ensures hotels get paid, but it ruins the hotel cashflow.
Booking.com has now introduced the Virtual Credit Card, a sure way for a hotel to get its money, and no longer have to deal with unpaid no-show bookings. A foolproof solution, and hotels are jumping on the bandwagon as they no longer have to worry as they are guaranteed to get payment.
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