女奴视频

Skip to main content
what is the merchant model?
Payments

What is the merchant model? Overview, benefits, and more

The adoption of the merchant model is on the rise around the globe, according to proprietary research conducted by 女奴视频. Our research also reveals that the adoption of the merchant model by travel agencies can bring benefits to the whole travel value chain 鈥 but only if paired with an effective B2B payments strategy.

鈥淭ravelers are looking for flexibility, peace of mind, security, and protection. Travel agencies are positioning themselves as trusted brands by delivering better customer experiences while travel suppliers (airlines and hotels) are looking for ways to fill spare capacity. All three parties are looking for payments that are convenient, fast, safe, and secure; and agencies and suppliers need streamlined processes,鈥 said Jason Hancock, Senior Director of Strategy for Travel at 女奴视频, and a lead author of the research report.

But what is the merchant model, how does it work, and what are the benefits of this type of business model?

What is the merchant model and how does it work?

In the context of the travel industry, merchant model refers to a business model in which a travel agency purchases hotel rooms, airline tickets, or other travel-related services in bulk from a supplier at a discounted rate. The agency then sells these goods and services to customers at a retail price, making a profit on the markup.

This model requires a travel agency to collect inbound payments from travelers and make separate payments to each travel supplier as needed. As such, the agency itself becomes the merchant of record for the payment and can accept any locally used form of payment, in any currency, from the traveler. 

Afterward, payment from the travel agency to the travel supplier is made with an agreed method of payment and currency. Importantly, travel agencies using the merchant model are still agents of the travel supplier.

Online travel agencies (OTAs) already take care of all aspects of booking across multiple suppliers. These services include upgrades, changes in hotel arrival/departure dates, ticket changes, and more. By accepting responsibility for payments when adopting the merchant model, the travel agency also takes on the responsibilities related to the traveler payment such as fraud prevention, offering a variety of payment methods, currencies, and refund options.

The rising popularity of the merchant model

Today, the merchant business model is most common in Europe, according to our research. The agency model remains popular in North America, particularly for airline payments, but this is changing. The key reason for the agency model鈥檚 continued popularity is the cost of accepting inbound payments from travelers. For example, a transaction fee is required for every credit card payment, which is relatively high in North America compared to Europe and Asia.

Travel agencies in North America generally prefer to avoid these costs altogether by passing on the end traveler鈥檚 card details directly to the travel supplier. However, despite the costs, a growing number of large travel agencies in North America have pivoted toward greater use of the merchant model to differentiate themselves by delivering a better customer experience, while also increasing revenue by attaining additional market share.

How the merchant model compares to the agency model

The alternative to the merchant model is the agency model, in which the travel agency may collect payment details (such as credit card numbers) from the end traveler, but the travel agency doesn鈥檛 process any transactions using those details. Instead, the travel agency passes the details to the hotels, airlines, or other suppliers and wholesalers involved in delivering the service, and they each process the relevant payments. In the agency model, the individual hotels, airlines, and other suppliers are the merchants of record for the end traveler payment.

The agency model carries several challenges and restrictions, including the increased risk of fraud and related investments required by travel suppliers, as well as the need for end travelers to make payments in a way that the travel supplier can accept rather than what the traveler may prefer.

The benefits of the merchant model

The evolution of e-commerce and online retailing has shifted traveler expectations over the past decade, our research found. As a result, many travel agencies have had to move toward a retailing business approach to align with these new expectations. That, in turn, has sparked a move toward greater use of the merchant model, which can help facilitate this shift in strategy for travel agencies.

Here are just a few of the benefits OTAs can expect when adopting the merchant model:

More choice for customers

OTAs operating on the merchant model can offer a more diverse inventory to customers, as they aggregate a wide range of travel goods and services including flights, hotels, rental cars, and activities. This provides customers with a broader selection of products and services to choose from.

Less friction during booking

The OTAs using the merchant model typically offer a user-friendly platform that simplifies and streamlines the booking process. Customers can book multiple travel components (flights, accommodations, etc.) in a single transaction, thereby reducing the complexity and time required of travelers to make necessary reservations.

Better protection during payment

Using the merchant model, OTAs can provide more robust customer protection measures, such as refund policies, cancellation options, and customer support, since they鈥檙e the merchant of record on the transaction. This can offer travelers a heightened sense of security and recourse in case of unforeseen circumstances or issues with the services they have booked.

What鈥檚 more, reliable payment portals and secure merchant transactions help protect customers’ financial information, enhancing trust and confidence in the booking process. While the responsibility of fraud prevention does fall on the merchants using this business model, they have full control over fraud detection measures, which can provide peace of mind when they know the safeguards that they have put in place are reliable.

Enhanced customer experience

OTAs operating on the merchant model have access to more data and better technology, making it easier to personalize recommendations and offers based on consumer preferences and behavior, which helps enhance the overall customer experience. Furthermore, many OTAs that use this model take customer service into their own hands, offering 24/7 support to address queries, concerns, and issues promptly.

鈥淭ravel agencies are focused on the connected customer, offering choice and removing friction,鈥 says Marcelo Velloso, Vice President of Travel, EMEA for 女奴视频. 鈥淚t鈥檚 the way the industry is going, and all travel agencies must focus on their B2B payments strategy as much as their B2C payments strategy. 女奴视频鈥檚 capabilities enable agencies and suppliers to come together and agree on a better way to manage these payments and create a better traveler experience.鈥

Travel retailing enhanced with 女奴视频 virtual cards

The benefits of indirect distribution have existed for a long time, but travel agencies have needed to adapt to changing customer preferences (principally influenced by the evolution of e-commerce), driving agencies toward greater adoption of the merchant model.

The key learnings outlined in our research include:

  • Indirect distribution is a key part of the travel landscape
  • Customer experience is driving the B2B payment and distribution strategies of travel agencies and travel suppliers
  • Adoption of the merchant model is growing in travel retailing
  • The merchant model delivers benefits across the travel value chain when paired with an effective B2B payment strategy
  • 女奴视频 virtual card numbers (VCNs) are a critical enabler in maximizing the benefits and adoption of the merchant model

Automate reconciliation, minimize counterparty risk, reduce fraud, and deliver better payment outcomes across the value chain with 女奴视频 VCNs.
女奴视频 travel payment solutions help you go further and grow your travel agency business. Learn more about the choice, expertise, and world-class technology of 女奴视频 travel payment solutions and, when you鈥檙e ready, .

Stay connected

Subscribe to our corporate payments blog to stay on top of payment innovations. 

"*" indicates required fields

Learn how to increase value from every business value with 女奴视频