Is Saving On Credit Card Fees Costing You Money?

Jonathan Murray —  October 29, 2013

Whether it’s ease of use, a sense of security, or the attraction of points and other incentives, travelers think “card is king” when it comes to booking their accommodations online.

A recent survey by PhoCusWright found that among lodging suppliers – a group that includes vacation rentals – 68 percent of website bookings are made and pre-paid by credit card. With a predicted 98.3 million people in the U.S. booking travel plans online this year, that preference for plastic isn’t anything to sniff at.

And yet, a lot of vacation rental owners do – although not without reason. The same PhoCusWright survey found that vacation rental owners aren’t alone in their concerns about

  • Credit card fraud (accounted for 1.1 percent of bookings via company websites),
  • High processing fees (averaging 2.5 percent for credit card transactions), and
  • The actual process involved.
Graph: Travel Payment Concerns

Image by PhoCusWright. Used with permission.

As a result, a lot of owners turn away credit cards in favor of checks or money orders – neither method less likely to expose them to fraud, but perhaps easier to manage with low or non-existent fees.

But what does that choice cost their business?

“Companies may view payments as just a sleepy back-office process,” PhoCusWright noted in Payment Unsettled: Cost, Opportunity and Disruption in Travel’s Complex Payment Landscape. “But the moment the customer’s wallet is out, an effective payment system (and efficient customer experience) makes the difference between winning and losing a sale.”

Change is coming, if slowly

Earlier this year, I anticipated that online bookings will be a major trend in our industry this year. In a recent look at those predictions, Vacation Rental Marketing Blog’s Matt Landau wrote that he feels our industry has instead become polarized:

“You have a) this very antiquated market (getting smaller by the minute) of owners and managers who do bookings manually…But on the other end of the spectrum, you have b) the convenience market of online booking software, which has pretty much taken over the industry.”

"an evening playing 'smartphone' pub quiz with the exeter twitterati!" on flickr, by Phil Campbell (CC BY 2.0)
Further driving that shift, the travel industry is increasingly looking to alternate payment solutions like PayPal, Alipay and Bill Me Later, as well as other digital wallet options. While the details vary, these solutions offer travelers easy ways to pay that don’t require them to share banking information and generally take little more than a few clicks.

Businesses have been reluctant to implement these alternatives for a few reasons, including

  • lack of demand
  • limited availability
  • technical difficulties

Today, just one in ten lodging suppliers accept these alternate payment methods – but PhoCusWright found that more than 30 percent intend to implement them soon.

“E-payments help increase cash flow, improve security, and lower costs,” Sean O’Neill reported on tnooz. ”But they come with their own pitfalls, such as high fees, risk of fraud, and conflict with local preferences for cash payment in emerging markets.”

There is no perfect solution when it comes to processing payments for your vacation rental. But there are a growing number of options that make it easier to balance your concerns against the preferences of your potential guests.

Have you changed your payment policies recently? Tell us about it in the comments section below.

Jonathan Murray

Jonathan Murray

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Before starting MyVR, he co-founded Lift Media (acquired), a lead generation company that worked with clients like American Express, Netflix, and Fandango. He started MyVR after being frustrated with setting up his own Sonoma cottage as a vacation rental. He studied engineering at Bucknell University and received his MBA from Stanford University.
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3 responses to Is Saving On Credit Card Fees Costing You Money?

  1. Hi Jonathan,

    While I can’t currently agree that having an online booking capability for a VR property is the difference between “winning and losing a sale”, I wholeheartedly believe that providing the ability for guests to provide payment via credit cards is mandatory.

    I do 100% of my VR’s transactions via a credit card merchant account, and I have been told by my guests that not only do they appreciate it…, they will never book a VR that doesn’t allow credit card payment.

    One tip I’ll pass along to those new to this area:

    Make sure that you set yourself up to gather as much info from the guest as possible as it relates to the credit card transaction (e.g. card number, expiration, holder name, address, zip, CVV, etc). Some credit card processors will allow you to do a transaction without all this info, but their risk is higher without it, so they will charge you higher fees as a result. Get everything from the guest, provide it to the processor, and keep your fees as low as possible.

  2. Jonathan Murray
    Jonathan Murray October 30, 2013 at 2:58 pm

    Good advice, Curt. Thanks for the comment.

    On your opening statements, it sounds like your drawing a line between merely taking credit cards as a payment method and having an online booking process. Is that right? You mention that you have had renters who wouldn’t rent a home that didn’t take credit cards, but that you don’t think a lack of an online booking process could result a lost sale.

    At any rate, I think we would agree that a worthwhile goal for the industry is to try to remove friction in the transaction where possible. We have a long way to go, but the industry is shifting quickly. I think offering a seamless online booking process positions an owner well, and lowers whatever risk may exist in losing a sale by being behind the times. The industry seems to be moving this way, which I think will help it to grow, which helps us all.

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