When talking about the payments industry, the focus often lies on the needs of traditional financial institutions and fintechs. While their needs are undoubtedly important, the industry-specific needs of niche markets often go overlooked.
One such niche market is the hospitality industry, and more specifically, the hotel industry. Payments in the hotel industry are largely inefficient and inconvenient for both hotel brands and their customers.
To talk more about the unique payment needs of hoteliers and how to improve that process, PaymentsJournal sat down with Mike Carlo, Founder & CEO of XanderPay, a startup company with an exclusive focus on hotel payments.
How are hotel payments made?
To understand the payment needs of hotels, it’s important to have a good grasp on just how hotel payments are made. There are two major ways that consumers book hotel rooms: through the hotel brand’s website, and through third-party online travel agencies (OTA) contracted with hotels. Here’s how both work, and why they aren’t as efficient as they could be:
1. Booking through a hotel brand’s website
Let’s say a consumer from New York goes directly to a hotel brand’s website and books a week-long stay at a hotel room in London. When making the reservation, they enter their credit card information.
Contrary to what you may think, that hotel chain is probably not processing the payment centrally when that order is placed. Instead, it is sending that credit card information and booking data to the specific property in London the customer will stay at, which processes it through its local acquiring chapter.
Because everything is done out of the individual property, hotels are notoriously under-informed about their own payments processes. “Three years ago, if you went to any major global hotel brand and asked executives about its fraud rate, charge rate, payment processing costs, or anything like that, they would have absolutely no idea because everything was on the property level,” explained Carlo.
The lack of centralized processing also comes with major inefficiencies, as the hotel brand is not performing optimal routing or doing any currency conversation. This inefficiency can cut into a company’s profit since money is being wasted processing transactions. This is changing, though, as major hotel brands have acknowledged that a move towards centralized payments needs to happen and thus started to build up corporate-level processes.
2. Booking through an online travel agency
Not all consumers go directly to a hotel brand’s website to book a visit. Instead, many opt to use third-party online travel agencies (OTA) that allow them to conveniently scroll through various options and pick the hotel that best suits the user’s wants and needs.
For international travelers, OTAs may be the only option to use their preferred payment method. Many big brand hotels have struggled to accommodate the needs of Chinese guests in particular, who prefer to pay with WeChat Pay, Alipay, and UnionPay. All of the brands have the capabilities for their guests to use those preferred methods—but only in properties within China.
The workaround for this has been “to redirect the guest to a Chinese-based OTA, where they can pay how they want,” noted Carlo. But this results in large profit losses for hotel brands, which typically pay 15-20% of the total booking cost to the OTA. While a single hotel booking may not cause much damage, the over 150 million annual Chinese traveling abroad mean hotels are losing out on staggering amounts of money.
When a hotel reservation is made through an OTA, the OTA collects funds from the guest and then pays the hotel with a virtual credit card that is processed through the hotel’s point-of-sale system. Hotels then pay an average of just under 3% to process that virtual card, resulting in even further losses beyond the 15% commission.
To put this into perspective, imagine a customer books a $1,000 stay at a hotel through an OTA. With a 15% commission rate ($150) and 3% ($30) kickback processing fee, the hotel is losing a whopping $180 on that customer’s stay.
Both booking methods are costly for hotels
Ultimately, traditional booking methods have proven themselves to be costly for hotels. “The legacy ownership structure of the industry, where hotel brands do not manage money flow at all, is immensely inefficient,” commented Carlo. “They lose on foreign exchange, payment processing efficiency, and sending guests to more expensive distribution channels.”
How XanderPay is improving hotel payments
XanderPay’s hotel industry specialty means it can hone in on the key problems diminishing hotel profits. One of the things it is doing is working with some of the largest acquirers and payment service providers in the hotel space to create a solution that empowers hotel brands to process payments centrally.
But even with a centralized system in place, funds still need to get out to individual hotel properties. Knowing this, XanderPay has a solution that works with payment service providers and acquirers to transfer the funds to the hotel.
Centralizing hotel payments is just a fraction of what XanderPay is working on. “The core of the business,” explained Carlo, “revolves around third-party booking. Our solution enables the same transaction from an online travel agency to a hotel through a localized bank transfer.” XanderPay charges a flat fee that is significantly less costly than the percentage fee hotels pay for cards, allowing hotels to avoid the costs associated with international money wiring.
The payment processing needs of niche industries are often overlooked, leaving room for companies to fill the gaps and provide the needed services. XanderPay focuses on updating legacy payment methods in the hotel industry to reduce inefficiencies in the process and maximize profits for hotel brands.