Tour operators tend to work with low margins. Research by Arival and GetYourGuide, based on a survey of over 7,000 tour, activity and attraction operators, found that while two in three operators are profitable, one in five are not (or aren't sure). Among small operators specifically, only half reported profitability, with 30% reporting losses. And even among those turning a profit, margins vary dramatically: a third report margins above 10%, while the rest are operating on less.
With one report finding that nearly all the businesses surveyed believe their payment processing could be more efficient, it's clear the travel industry has a payments problem. This article breaks down:
- Where payment costs are hidden
- How they compound across a typical booking cycle
- What tour operators can do to protect their margins
What are the Hidden Costs of Travel Payments?
The cost of processing payments in travel is rarely what it appears to be. The processing rate your provider asks for is just the beginning. By the time FX fees, chargeback costs, manual processing time and checkout friction are factored in, the true cost of travel payments is significantly higher. Here's where the hidden costs of travel payments tend to be found:
Processing and FX Fees
In a high-volume, low-margin industry like travel, the fees you pay have a big impact if left unoptimized. Travel payments come with several fees, including:
- Payment processor fees (typically 1.3% to 3.5% of the transaction value)
- Foreign exchange (FX) fees for cross-border payments (usually 1% to 3% of the transaction value)
Across hundreds or thousands of bookings, these fees eat into your already thin margins.
Chargebacks and Dispute Management
As many as 71% of travel companies have seen chargebacks rise in recent years. The gap between payment and fulfillment gives customers a long window to initiate a chargeback, whether due to buyer's remorse or unexpected interruptions. But the cost isn't just the refund customers receive—each upheld chargeback comes with a chargeback fee, administrative costs and the risk of being placed in the card network's monitoring program due to a high dispute ratio.
Manual Processing Inefficiencies
44% of businesses waste more than 1.5 hours per person on payment processing inefficiencies every week. For busy tour operators managing bookings across various channels, including direct, phone, travel agent and OTA bookings, each with different payment methods, currencies and settlement timings, reconciliation alone can absorb much of your team's time.
Cart Abandonment Due to Payment Friction
A recent survey revealed that 99% of travel industry respondents are concerned about payment friction within travel payment processes. Losing customers at checkout due to a clunky payment experience is a major point of failure that needs to be addressed. Industry research recently revealed that payment friction drives nearly 94% of abandoned travel bookings. Operators whose checkout only offers traditional card payments are handing bookings to competitors whose payment experience better reflects how customers want to pay.
What Pressures are Affecting Tour Operators' Margins?
Hidden payment costs don't exist in a vacuum—they compound with a set of pressures specific to how tour operators run their businesses.
The High-Risk Label Costs You Before You've Taken a Single Booking
‘High-risk’ tour operators are typically subject to higher processing fees, stricter reserve requirements and less favorable terms than businesses in other sectors. On top of this, thin margins and the gap between payment and delivery mean tour operators have less tolerance for avoidable payment costs than almost any other consumer-facing business.
The Cash Flow Timing Trap
Tour operators typically collect deposits at the point of booking. Soon after, they need to pay suppliers well in advance of departure, and missing a supplier payment due date by even 24 hours can trigger steep penalties that further eat into profit margins. This timing mismatch is a major cash flow challenge, made worse by acquiring banks withholding a percentage of funds to cover potential chargebacks.
Paying Global Suppliers in Multiple Currencies
Many bookings involve payments to multiple suppliers across different countries and currencies. Each conversion incurs FX and payment processor fees, and reconciling across dozens of suppliers each month is a major time sink for busy tour operators. On top of that, long settlement times for cross-border payments, typically between 3 and 5 days, add to tour operators' cash flow woes.
The Constant Threat of Chargebacks
Unfortunately, many tour operators are prime targets for chargeback fraud due to the nature of card-not-present transactions. When a fraudulent chargeback occurs, the operator loses the value of the original payment and the cost of the service already delivered to the customer—a double hit that stings all the more when bookings are high-value. The true cost of a chargeback, including fees, administration work and the risk of exceeding card schemes' thresholds, can be crippling for tour operators.
What Do High-Performing Tour Operators Do Differently?
Arival's research found that the most profitable tour operators are tech-forward, and this applies to payment infrastructure. Operators who actively optimize their payment setup consistently deal with lower processing costs and fewer chargebacks. So, how do they do it? They trade generic merchant accounts, which aren't designed for the travel sector, for a specialized travel merchant account.
A tour operator merchant account is built for the unique nature of your business: multi-currency and global payment processing capabilities, acceptance of various payment methods, robust fraud and chargeback protection and easy booking software integration means you can wave goodbye to costly and fragmented payments. Let's dig deeper into how these capabilities address the hidden costs of travel payments outlined above:
Multi-Currency Acceptance and Local Acquiring
By routing transactions through banking networks in customers' home countries, local acquiring reduces interchange and cross-border fees associated with international payments. Combined with pricing in the customer's local currency, it improves conversion as well as your margins.
How Repayd Supports You
Repayd's cross-border payment capabilities and intelligent cost optimization use local acquiring to reduce the cost of international bookings. This means that you get to keep more of every booking without making payments overly complex.
Diversifying Payment Methods and Reducing Checkout Friction
With a high proportion of payments being abandoned due to friction, tour operators need to do all they can to appeal to new customers. The high cart abandonment issue is fixable, but only if checkout reflects how customers actually want to pay.
How Repayd Supports You
Repayd supports a wide range of payment methods so that customers from any market can pay in the way that works for them. The result is fewer abandoned bookings and a checkout experience that builds much-needed trust.
Proactive Chargeback Management
Given that chargebacks are rising and hard for tour operators to avoid completely, a robust approach is needed. Tracking disputes helps you stay on top of chargebacks, win more disputes and address root causes to bring your ratio down.
How Repayd Supports You
Repayd combines proactive chargeback management with built-in insolvency protection, covering exposure from both disputes and supplier failure—particularly relevant for operators with long booking lead times.
Streamline Payment Control
Manual reconciliation costs your team time that could be spent elsewhere, and manual errors lead to issues that need to be resolved. For tour operators managing bookings across several channels, the time spent fixing payment fragmentation issues eats into already thin margins.
How Repayd Supports You
Repayd provides integrated control accounts with full visibility into fund flows. Payment and booking statuses are in one place, replacing manual reconciliation with a clear picture of where your revenue stands.
Fraud Protection
For tour operators, card-not-present transactions pose a high risk of fraud, and chargeback fraud eats into margins and threatens your merchant account standing. Standard fraud tools designed for other sectors, like retail, aren't suited to the risk profile and booking patterns of travel.
How Repayd Supports You
Truly effective fraud defense for tour operators requires a layered approach that covers all bases:
- Transaction monitoring and risk scoring to flag suspicious bookings
- 3DS2 authentication to verify cardholders are who they say they are
- Tokenization to keep card details secure
The good news is that Repayd's payment compliance and security capabilities are built to address the risk tour operators face, rather than retrofitted from a generic fraud solution.
Payments are Costing You More Than You Think
Optimizing payment costs is one of the few ways tour operators can make meaningful savings without reducing service quality, renegotiating supplier contracts or significantly growing volume. But optimization is only possible with a specialized travel merchant account built around the realities of providing tours.
If you haven't reviewed your payment setup recently, it's worth finding out what it's really costing you. Talk to the Repayd team today to find out how a merchant account for tour operators allows you to keep more of every booking.
