Travel merchants are increasingly facing issues in payment processing due to the chargebacks in travel packages. The travel industry has always been associated with high-risk transactions such as international transactions, large-scale bookings and changes in travel planning.
Now, what are the chargebacks in travel packages?
The chargebacks generally begin with a disputed transaction initiated from the customers’ end. In cases like these, the customers fail to communicate with travel merchants and instead they initiate disputed transactions with the banks. Once the disputed transactions are initiated, the banks start digging into the issue while reversing the payment temporarily. Therefore, the travel industry has quite a complex payment processing structure, and the travel merchants are most affected by this complexity.
For a long time now the travel companies have considered these financial disputes as major threats as they are not only limited to operational inefficiencies but may also involve payment refunds, penalties, investigations, and higher processing fees.
In comparison, the travel companies go through even higher chargeback rates than the retail industry, specifically between 1 to 3 percent. The main reasons behind this increasing chargeback rates are booking cancellations or fraudulent activities by the customers.
This article discusses the importance of having a unified payment gateway to mitigate the transaction risks affecting the travel companies.
Common Reasons behind the Chargebacks in Travel Companies
Let’s look into the key factors that contribute to the chargebacks in travel packages.
1. Complex Transaction Structure
Several stakeholders are associated with the travel industries, such as:
- Online Travel Agencies (OTA)
- Airlines
- Travel Merchants
- Transaction Gateways
- Financial Organizations
- Hotels and Restaurants
Therefore, the presence of multiple stakeholders often results in payment delays and complex billing systems.
2. Sudden Disruptions and Events
Travel companies are often affected by disruptions such as:
- Weather events
- Geo-political events
- Cancellations
- Pandemic
- Visa Disputes
These events are unsatisfactory to the customers; hence, initiating the refund issues.
3. Long-term Booking
Travel companies initiate booking procedures in advance to offer best services to the customers; however, during this time a lot can change such as:
- Changes in international policies
- Customers avoiding payments
- Changes in motives
These are the key attributes of payment issues.
4. Reversed Payments
Travel companies, mostly those conducting international travels, have high transactional values. Therefore, in case of payment disputes the travel merchants are vastly affected as the whole payment is reversed.
5. Fraudulent Activities
Some fraudulent customers often intend to request the bank to refund instead of directly communicating with the travel merchants.
Chargebacks Costs for the Travel Industry
The direct and indirect impacts of payment disputes are not known to the majority of travel merchants.
Direct Chargebacks
- Operational fees for mitigating the disputes
- Refunding the entire amount
- Chargeback costs range between $15-$100
Indirect Chargebacks
- Damaged customer loyalty
- Damaged brand image
- Termination of merchant license
- Higher payment processing fines
- Rolling reverses, typically between 10% and 20% of the total dues
For an instance, if a travel company’s annual income is $10 million, then only a 2% chargeback can result in dispute costs between $300,000 – $500,000. Therefore, to reduce travel chargebacks a far advanced payment processor is required.
Drawbacks of Traditional Payment Gateways in Travel Industry
The traditional payment gateways are not effective enough to ensure travel fraud prevention entirely. The major drawbacks of this system are listed below:
1. Lacking Transparency
The traditional payment gateways are controlled and monitored by financial organisations; thus, limiting travel merchants’ ability to access:
- Evidence of the dispute
- Refund processes and timelines
- Transaction lifecycle
2. Higher Processing Amounts
The financial organizations bind the travel industry with stern monitoring systems and higher processing amounts for being among the high-risk industries.
3. Fragmentation
Travel companies often face operational issues due to fragmented systems such as:
- Dispute mitigation
- Refund processing
- Fraud recognition
- Payment routing
4. Ineffective Dispute Prevention
The traditional payment gateways often fail to prevent the disputes and only react when they have already occurred.
5. Settlement Issues
The travel companies often face delays in international travel payment settlement due to the intervention of intermediary banks.
Hence, the application of advanced blockchain payment technology is absolutely necessary to reduce the chargebacks in travel packages.
Efficiency of Blockchain Payment Technology in Mitigating the Disputes
The blockchain payment technology helps in developing an unified payment gateway by combining different payment processes into an unified secured payment framework.
The blockchain payment gateway ensure three main aspects of security:
- Automation
- Transparency
- Immutability
The key advantages of this process are listed below.
1. Indestructible and Transparent Transactions
Blockchain efficiently monitors every payment in a decentralized manner that cannot be changed or modified.
The major advantages are:
- Stores evidence of booking
- Secures the payment proof
- Monitors payment history
Therefore, in case of any payment disputes, the travel merchants are able to present the evidence of payment that was previously lacking.
2. Instant Payment Settlement
Blockchain payment reduces chargebacks in travel packages by ensuring:
- Lower transaction costs
- Instant settlement
- Eliminate involvement of intermediaries
These factors contribute largely to travel fraud prevention.
3. Eliminates Chargebacks
Blockchain payment gateway is quite effective in verifying payment records and establishing smarter contracts. Therefore, it contributes to:
- Securing merchant accounts
- Lower the dispute risks
- Reducing chargebacks
Therefore, elimination of chargebacks in travel packages gives competitive advantage to the blockchain payment gateway over traditional payment gateways.
4. Initiates Automated Refunds
The blockchain payment gateway establishes smart contracts to allow the travel companies to apply effective cancellation policies and initiate automated refunds.
For instances:
- In case of flight cancellation, the payment is automatically refunded
- In case of cancellation following the deadline, the refund is cancelled
- In case of cancellation under the policy, partial refund is initiated
5. Single Payment Orchestration
The blockchain payment gateway acts as a payment orchestration travel system by connecting:
- Digital wallets
- Bank transactions
- Crypto currencies
- Local payment gateways
- Credit cards
6. Global Accessibility
Finally, blockchain payment gateway ensures:
- Seamless cross-border transactions
- Consideration of multiple currencies
- Reduces foreign exchange costs
How Travel Companies Can Reduce Chargebacks
Despite having advanced blockchain payment technology, it is important for the travel merchants to follow strategic rules to reduce chargebacks in travel packages.
Some of the major strategies include offering effective customer services, maintaining transparent refund policies, adopting AI-driven fraud recognition methods, improving billing processes, and confirming the booking details with customers.
Potential Future of Travel Payments
The application of blockchain technology will help the travel companies to mitigate disputes and enhance payment procedures.
The application of advanced technologies such as:
- Blockchain payment gateway
- Smart contract automation
- Unified payment gateway
Will allow the travel companies to maintain transparent records of every transaction, booking details, and payments made by the customers.
Conclusion
The days of traditional payment gateway are seemingly over for the travel industry, and a new technological advancement has taken over to mitigate the losses and disputes incurred by the merchants.
The blockchain payment technology ensures transparency, security, and reliability that are the three main aspects of a successful and growing industry. The factors like real-time settlement, transaction records, and smart contracts have allowed the travel merchants to provide evidence against the fraudulent claims of the customers.
Today, blockchain technology is no longer necessary but has become absolutely mandatory for the travel industry.