Maximising Interchange Savings for Travel Merchants

The travel industry faces significant challenges in payment processing, marked by global complexity, high transaction values, and diverse payment methods. Wouter Schuitemaker, VP of Strategy for Travel at Gr4vy, highlights how Payment Orchestration Platforms (POPs) offer a strategic opportunity for travel merchants to transform payments into a competitive advantage.

### Navigating Global Travel Payments

Travel merchants operate in a uniquely complex payment environment. They deal with a high average transaction value and heightened fraud risks, alongside the need to support multiple currencies and local payment preferences across various geographical regions. This complexity often leads to substantial payment processing costs. Schuitemaker points out that merchants must not only handle various payment methods but also manage chargebacks and dynamic pricing models inherent to the travel sector. These factors underscore the need for sophisticated payment solutions that can adapt to global demands while minimizing expenses.

Payment Orchestration Platforms emerge as a crucial tool for addressing these challenges. A POP acts as a central layer that unifies and manages a merchant’s entire payment stack. It enables features like dynamic routing to preferred acquirers, sophisticated fraud prevention tools, seamless reconciliation, and the ability to integrate and manage multiple Payment Service Providers (PSPs). By providing a single integration point, POPs simplify operations, reduce technical debt, and offer merchants greater control and flexibility over their payment ecosystem.

### Optimizing Interchange for Cost Savings

A primary focus for cost reduction in travel payments is interchange fees, which represent a significant portion of overall processing expenses. Interchange fees are paid by the acquiring bank to the issuing bank for each transaction and vary based on factors such as card type, transaction type (e.g., card-present vs. card-not-present), region, and merchant category. For travel merchants, these fees can be particularly high due to the cross-border nature of many transactions and the prevalence of card-not-present scenarios.

POPs facilitate the optimization of interchange fees through several strategies. Intelligent routing, or least-cost routing, allows merchants to direct transactions to the acquirer or PSP that offers the most favorable rates for a specific transaction. Local acquiring is another key strategy, where transactions are processed through an acquiring bank in the same country as the card issuer. This often qualifies for lower domestic interchange rates compared to cross-border transactions. By leveraging a POP, travel merchants can implement these strategies effectively, reducing unnecessary payment processing costs and improving their bottom line.

### The Future of Travel Payment Strategies

Beyond cost savings, optimizing payments through a POP delivers numerous benefits, including improved conversion rates, enhanced customer experience, increased business agility, and access to valuable data insights. A streamlined and flexible payment process allows merchants to offer preferred payment methods, leading to higher conversion and customer satisfaction. The agility provided by a POP enables quick adaptation to market changes and the adoption of new payment technologies. Data generated from a centralized payment system offers insights into customer behavior and payment performance, aiding strategic decision-making.

The future of payments for the travel industry is expected to involve further innovation, including the application of Artificial Intelligence (AI) for enhanced fraud detection and personalized payment experiences. Tokenization will continue to play a vital role in securing transactions and improving customer convenience. The growth of embedded finance and the continuous expansion of Alternative Payment Methods (APMs) will also shape the payment landscape, requiring merchants to maintain flexible and adaptive payment infrastructures. Wouter Schuitemaker emphasizes that by strategically managing payments, travel merchants can not only reduce costs but also differentiate themselves in a competitive market.

### Key Points

* Travel payment processing costs can range from 1% to 5% or even higher of the transaction value.
* Interchange fees typically represent the largest component of these costs, often accounting for 70% to 90% of the total payment processing fee.
* Interchange fees can vary significantly, ranging from 0.2% to 2.5% or more.
* An estimated 75% of online payments are still made using cards.
* Many merchants could be paying anywhere from 0.5% to 2% more than necessary on interchange fees alone.

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