Merchant services for travel agencies can be challenging to obtain. Learn how you can procure them and thrive in this enormous industry by checking out our comprehensive guide – covering things like commonly asked questions, statistics, tips, and resources.
Table of Contents
- State of the Travel Agency Industry
- Important Statistics & Data
- Relevant Laws & Codes
- Struggles Facing Travel Agencies
- Common Questions Travel Agency Merchants Ask
- Tips For Getting Your Merchant Account Approved
- Additional Industry Information
The travel industry singlehandedly accounts for a whopping 10.2% of the gross domestic product worldwide. Given the industry’s enormous size, you might expect that travel agencies would have no problem securing a merchant account with a payment provider, but you’d be wrong. It’s actually quite difficult for travel agencies to secure payment processing because travel agencies are considered high risk merchants.
There’s a silver lining, though. At PayMotile.com, we’re able to help 95.7% of high risk businesses — and we specialize in travel payment solutions.
Keep reading below if you’re ready to carve out your own space in the ever-growing world of travel business.
1. State of the Travel Agency Industry
Motherboard puts it this way: “Why are travel agencies still a thing?”
Blunt, but it’s a fair question. The digital age has completely transformed the travel industry. With the rise of online travel agencies (OTAs), consumers now have fast and easy access to thousands upon thousands of travel packages with highly competitive pricing. Indeed, the world’s largest travel agency (in terms of employees) is Expedia, and Priceline is a close second. Both are OTAs.
That being said, traditional travel agencies aren’t going anywhere anytime soon. The global economy is steadily growing. Worldwide, travelers have their hands on more disposable income, which signals a healthy outlook for the travel industry as a whole. And in this context there’s still solid demand for traditional agencies — it’s just a bit different than, say, a decade ago.
These days, traditional agents are finding success by focusing on niches like luxury, or specializing in a specific audience or destination. Encouragingly, millennials are also showing interest in traditional travel agencies – more so than other demographics.
The competition is split between OTAs and traditional agencies. The former is winning big on convenience and thrift, and the latter will need to get creative and focus on providing unique, customized experiences in order to compete.
The travel and tourism industry is one of the largest and fastest-growing in the world. Research conducted by Deloitte identified four key drivers of this growth:
#1. Healthy economic indicators for consumer spending
The U.S. economy is projected to grow 2 to 2.5% by the end of 2018. Unemployment is down and incomes are up, which breeds confidence in spending.
#2. Intense airline competition
Low-cost carriers and international airlines are in a fierce fight for fliers. Combined with the low cost of fuel, this drives down fares and leaves travelers with more flexibility than ever before.
#3. Healthy corporate travel demand
Corporate travel is projected to increase 6.1% as we approach 2019, the highest rate since 2011.
#4. Spending on “experiences” outpacing products
Spending on material goods is stagnating, as more people choose to use their money on life experiences (like traveling). Hence, more and more dollars are getting funneled into the travel industry these days.
The online travel industry generated $564.9 billion in 2016 alone. In 2017, the vacation and hotel bookings worldwide topped out at $1.6 trillion. These numbers show no sign of slowing down either.
- Economic growth will give the U.S. travel industry a solid lift over the next five years. OTAs will likely continue increasing their market share.
- Online travel sales are projected to grow to $817.5 billion by 2020.
- The total U.S. travel market (airlines, lodging, car rental, cruise, rail, and travel packaging) is projected to reach $370 billion by the end of 2018, up from a previously record-breaking $353 billion in 2017.
- In May 2018, IBISWorld reported that the U.S. travel agency market hit $40 billion in revenue. Annual growth from 2013 to 2018 is at 5%.
- However, while sales globally and in the U.S. are projected to rise through 2020, actual growth is projected to slow down a bit.
- Similarly, digital travel sales worldwide are projected to increase from 2014 to 2020, while digital travel sales growth is projected to gradually slow down over the next several years.
- Travel startups raised $30 billion in 2016 and 2017, almost as much as they raised from 2008 to 2017 combined. In this increasingly competitive space, innovation is expected to be a major driver of change and success.
2. Key Statistics
Travel Agency Market Stats: U.S., Canada, and U.K.
United States (May 2018)
|Number of Businesses
Canada (December 2017)
|Number of Businesses
United Kingdom (May 2018)
|Number of Businesses
Travel Agency Facts and Figures
- U.S. travel agency profits have been rising steadily. The average profit-to-revenue ratio was 6% a decade ago, and 12% in 2015.
- As of 2015, the majority of travel agents are reporting sales increases. Only 12% of agents reported a decrease in sales in 2015.
- U.S. digital travel sales are projected to be $198 billion in 2018.
- From 2008 to 2016, the number of U.S. internet users who booked travel online increased from approximately 40.6 million to 64 million.
Impact of the Millennial segment
- 33% of Millennials said they would use a travel agent over the next two years, compared to 17% of Gen Xers and 18% of Baby Boomers.
- 44% of Millennials said that using an agent is “worth it,” compared to 33% of Gen Xers and 34% of Baby Boomers.
- In 2017, Millennials planned to spend 19% more on vacations and to travel 36% more than they had the previous year.
Major Players and Annual Revenues
The travel industry is overwhelmingly dominated by two main players: Expedia and Priceline. Below are their most recent 10-K filings, along with lists of their subsidiary brands for the sake of transparency.
- Expedia (NASDAQ: EXPE) — $10.1 billion
- Expedia owns the following brands: Expedia.com, Hotels.com, Expedia Affiliate Network, Trivago, HomeAway, Egencia, Orbitz, CheapTickets, Travelocity, Hotwire, Wotif Group, Expedia Media Solutions, CarRentals.com, Classic Vacations, Expedia Local Expert, Expedia CruiseShipCenters, and SilverRail Technologies.
- (Note: As of March 2018, Expedia Inc. has been rebranded as Expedia Group Inc.)
- Priceline (NASDAQ: BKNG) — $12.7 billion
- Priceline owns the following brands: Priceline.com, Booking.com, Kayak, Agoda.com, Rentalcars.com, and OpenTable.
- (Note: As of February 2018, Priceline was renamed Booking Holdings Inc.)
3. Relevant Laws & Codes
In the U.S., there are no federal regulations specifically targeting the travel agency industry. However, there are currently five U.S. states that enforce “seller of travel” laws — California, Florida, Washington, Iowa, and Hawaii. These laws are extraterritorial, meaning they apply not just to travel agency operators within those states, but also to anyone who sells to residents of those states.
In addition to these seller-of-travel laws, individual state and local governments typically have their own general regulations and provisions that impact travel agencies. Laws about advertising, misrepresentation, disclosures, claim forms, and delivery of tickets or vouchers are common across many jurisdictions. For example, travel agencies can expect regulatory action from the following sources:
- State consumer protection statutes
- Federal and state telemarketing statutes
- State tourism boards
- The U.S. Federal Trade Commission (FTC)
- The U.S. Department of Transportation (DOT)
- State and federal case law
Laws in Canada are a bit more complex, particularly if you’re located in the province of Ontario. The Travel Industry Act sets regulations for all travel retailers and wholesalers operating in Ontario, and the Travel Industry Council of Ontario (TICO) monitors compliance with the requirements for registration, annual recertification, financial obligations, and advertising standards. Quebec and British Columbia also impose their own sets of regulations on travel agencies.
Travel agencies in the U.K. are subject to the 1992 Package Travel Regulations. Furthermore, to sell air travel, you will need to obtain Air Travel Organisers Licensing (ATOL), which is issued by the Civil Aviation Authority. Recent legislation from the European Union, the package travel directive, provides additional protections for holiday travelers that U.K. travel agencies must observe, at least until Brexit takes effect.
Industry Codes (SIC, NAICS, & MCC)
Travel agencies usually identify by the Standard Industrial Classification (SIC) code 4724 (Travel Agencies). Extended SIC codes are as follows:
- 472401: Tourist Information
- 472402: Travel Agencies & Bureaus
- 472403: Travel Consultants
- 472404: Trains-ticket Agencies
- 472405: Golf Vacation Packages
- 472406: Cruises
- 472407: Destination Management
- 472408: Tours-sound Tape Systems
- 472409: Viatical Benefits
- 472410: Wedding Honeymoon Planners
Incidentally, Priceline/Booking Holdings Inc. identifies with SIC code 7389 (Business Services, Not Elsewhere Classified), and Expedia uses 4700 (Transportation Services).
Travel agencies also use the North American Industry Classification System (NAICS) code 561510 (Travel Agencies) and the Merchant Category Code (MCC) 4722 (Travel Agencies, Tour Operators).
4. Struggles Facing a Travel Agencies (and solutions)
Problem #1: Chargebacks
When a customer disputes a transaction, a chargeback is generally the end result. Too many of them will bump your ratio too high (1%+) — a major red flag for most payment processors. You can read more about chargebacks here.
Travel agencies are subject to a higher-than-average number of chargebacks than the average merchant. In this case, they to happen because people book their trips well in advance and try to cancel when something comes up unexpectedly. If a customer is unable to cancel and get a refund, they might take the next step and try disputing the charge.
Another source of chargebacks is fraudulent activity. It’s especially challenging for OTAs to monitor fraud because of the sheer number of transactions they process every day — airline tickets, for example, might have route combinations numbering in the millions upon millions.
Given that most purchases are big ticket items, payment processors are understandably hesitant to provide merchant services for travel agencies. There are things you can do to manage your chargeback ratio, though.
- First of all, do everything in your power to provide outstanding customer service. If possible, offer 24/7 support.
- Make it an agency policy to give refunds. It might be expensive, but it’s better than not having a travel agency merchant account due to a high chargeback ratio.
- Partner with a company of processing veterans like Motile, who can help you manage disputes and prevent chargebacks. We’ve built a solid network of payment processors over the years, and we can offer you a variety of solutions to help your travel agency succeed
Problem #2: Application Denials
Since travel agencies are considered high risk merchants, your options for payment processing are somewhat limited. Most mainstream banks and processors won’t even bother with a merchant account for a travel agency as a matter of policy. Even aggregators like PayPal tend to exercise caution when dealing with businesses in the travel industry.
- Make sure you’re presenting a completely transparent and consistent business plan, website, and customer service track record when applying for a high risk merchant account.
- Keep careful records of all transactions and maintain a clean payment processing history.
- Keep your personal credit as high as possible. Having great credit yourself sends a strong, positive signal to payment processors who are considering extending their services to your business.
Problem #3: The Big Dogs
If you’re reading this article, chances are you’re a small startup or a home-based travel agency, and you’re looking at a market dominated by Expedia, Priceline, and a few others. Some of these OTAs are so big that fighting them on price is impossible.
But while OTAs are able to capitalize on volume and accessibility, sometimes the sheer number of options they present is overwhelming for customers – causing them to seek guidance elsewhere. OTAs simply can’t offer the same kind of personalized service as traditional agencies.
- Outdo the OTAs by offering a more authentic, personal experience to impress customers and keep them coming back for more.
- Focus on a niche, whether that’s a particular destination, a specific audience segment, or a single type of travel.
- Provide a smooth booking experience online. Customers should be able to search and book travel without any user experience issues.
- Offer all-star customer service, ideally with 24/7 access.
Problem #4: Regulatory Headaches
Because travel agencies often work across borders (both domestic and international ones), it can get complicated to ensure you’re abiding by all the relevant rules and regulations. Depending on where you operate, you could be subject to a wide variety of legislation from different states or provinces. It might seem a bit tricky to manage, but there are things you can do:
- Operate under a host agency that already has the legal framework sorted out for you.
- Work with a travel law agency to be certain that you’re complying with all state, local, and international regulations applicable to your business.
- Join a trade association like the American Society of Travel Agents. Trade associations typically have resources that can help you navigate legal and regulatory areas. ASTA, for instance, offers a course called Legal Overview in Travel Agency Operations ($49 for members).
- Carry professional liability insurance to protect yourself in the event of a claim made against you for errors in business activities or services.
- Make sure you’re up to speed on your responsibilities and legal duties as a travel agent.
5. Common Questions Travel Agency Merchants Ask
Question #1: Why did my travel agency merchant account get frozen or closed?
Was your travel agency merchant account suddenly closed or its funds frozen? There are a few things that might be going on:
- Your chargeback ratio surpassed and stayed higher than 1%.
- Your payment processor changed its policies regarding high risk merchants.
- You added an international account, which might not be protected by the same regulations as domestic accounts and is therefore considered a red flag.
Question #2: What can I do to lower my rates and increase my volume?
As a high risk merchant, it’s normal to see higher rates and lower volumes on your account, at least during your initial trial period. This is the case because payment processors are trying to account for the additional risk posed by travel agencies. It’s possible to get lower rates and higher volumes, but unfortunately it’s just going to take some time.
Most payment processors will want to see signs of stability and growth over time. In general, you’ll probably want to shoot for the following:
- 3-6 months of successful payment processing
- Predictable transactions
- Steadily growing volume
- Stable account balance
Question #3: How do I get a travel merchant account?
Opening a bank account is a matter of shopping around until you find a high risk payment processor that’s willing to work with you. To improve your chances, plan to be as transparent as possible in your application. Show a solid history of successfully processing payments and be able to explain any chargebacks you’ve had to deal with.
If you don’t have a lengthy business history or you’re just getting started, be sure to outline as much information as possible in your application – your plans for marketing, customer service strategy, website security measures, processing volume, and other relevant details.
At Motile, we understand the unique needs of the travel agency industry, and we offer multiple solutions with competitive rates, including credit card processing, debit card processing, and Automated Clearing House (ACH) transactions.
6. Tips For Getting Your Merchant Account Approved
Tip #1: Be Transparent
Transparency goes a long way when you’re a high risk merchant. With travel agencies, it’s essential to be completely open and honest about what you’re offering your customers — because if you embellish your travel packages, that’s when the chargebacks start rolling in.
You also don’t want to be embellishing anything when it comes to your finances. If a payment processor notices anything suspicious or unusual, they’ll likely just shut down your account without warning.
Tip #2: Join a Trade Association
Besides boosting professional pride, joining a trade association can improve your appeal to potential customers as well as payment processors. The American Society of Travel Agents, the Association of Retail Travel Agents, the United States Tour Operators Association, and the U.S. Travel Association are just a few examples of associations in the U.S. In addition, there are various certificate programs you can pursue to give yourself an edge as a high risk merchant.
Tip #3: Establish a Good Financial Track Record
It will be difficult to get a travel merchant account unless you can show that your finances are in decent shape. Perhaps you already have an immaculate history, but if not, you can still prove yourself during a trial period when you sign up with a high risk payment processor. As discussed above, you’ll typically need to show 3-6 months of successful processing as well as a stable balance reflecting steady growth and predictable transactions.
Tip #4: Don’t Get Too Attached to One Payment Processor
As a travel agency, you’re probably already well aware of how quickly things can change with a payment processor. High risk merchants tend to have trouble with steady relationships, but Motile can set you up with the best travel agency merchant account. We offer a wide variety of payment processing options, and our partners know what they’re getting into with travel agencies — so you can count on a stable relationship.
7. Additional Travel Agency Industry Information
Founded in 1931, the American Society of Travel Agents provides advocacy, research, education, a daily newsletter, and more for U.S. travel agents and travel suppliers.
The Association of Retail Travel Agents was founded in 1963 and represents small- and medium-sized agencies in North America. They offer advocacy, mentoring, training, a daily newsletter, and more.
The United States Tour Operators Association was founded in 1972 to promote integrity and professionalism among tour operators. Of note is its $1 Million Travelers Assistance Program, which requires members to set aside funds to protect consumers.
Since 1941, the U.S. Travel Association has promoted, educated, and advocated for the benefit of all involved in the U.S. travel industry. They host a variety of events and programs to support their overall mission of increasing travel to and within the U.S.
The Association of Canadian Travel Agencies is a national organization that represents the interests of the retail travel sector in Canada. Originally part of the American Society of Travel Agents, it split off to form its own association in 1977.
Statista is a consumer and market data powerhouse. A good deal of information is available free of charge, but some statistics require a premium account, which costs $49 per month.
May 2018 report on the travel agency industry by IBISWorld, a leading market research and intelligence firm founded in 1971. IBISWorld also provides research for other travel agency markets including Canada, the United Kingdom, and Australia.
Comprehensive report from the Deloitte Center for Industry Insights, a business research community associated with the Consumer & Industrial Products team at Deloitte Consulting LLP.
Travel agency industry stats and facts compiled by the U.S. Bureau of Labor Statistics.