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January 04th 2018

Why are payments acceptance costs so high in the hotel industry?

Hotel room occupancy is increasing at its highest rate in five years as a result of more visitors choosing the UK as their holiday destination. This increase, linked to the UK’s post-Brexit tourism boom, presents a unique opportunity for hotels who can combine this increase in visitors to the UK with optimised payments arrangements.


Accepting payments in the hotel industry is expensive and extremely complex – we take a look at why fees are so high for hotels and what merchants can do to mitigate them.

Why are fees high in the hotel industry?

Unique payment profile

High average transaction values, a large number of international consumers, and high credit card and commercial card usage, make the payment profile for a hotelier different to other merchants. Unfortunately, this can result in high fees and complex arrangements.

Commercial cards have a higher interchange rate than other card types as they were excluded from the scope of the EU Interchange Fee Regulation (IFR). Credit card fees have always been charged based on a percentage of the transaction value (ad-valorem) but, as a result of the IFR, most countries (including the UK) have found that debit card interchange fees have transitioned from a per item to an ad-valorem charge. This means that the hotel industry, which has high average transaction values, are hit harder by these fees.

Further, hotels usually take a high volume of American Express (Amex) cards, which often incur higher fees than Visa and Mastercard. Merchants can choose to accept Amex cards or not, but for the hotel industry, the volume is usually too high to refuse acceptance, making negotiations even more difficult.

Large volumes of international payments

Hotels experience a large volume of international card payments. Scheme fees for inter-regional transactions (i.e. non-EEA) are higher, so the total merchant service charge is high for hotels. There are additional issues for hotels regarding settling international transactions in their own currencies, at a rate that is preferable to them. These complexities, combined with a unique payment profile, means that hotels were affected by the scheme fees increases (implemented in January 2017) more than other industries.

Unique payment procedures

As well as unique payment profiles, the payment systems within hotels are often more complex, meaning that solutions for optimisation need to be bespoke. Payment arrangements must incorporate the check-in system, food and beverage counters, additional services, and corporate events, to name a few.

The general process with card pre-authorisation (with two authorisation messages and one settlement) can result in two sets of fees – one for check-in and one for incidentals. This is even further reason for hotels to ensure their fees are as competitive as possible and that their payment solutions are optimised. Acquirers are liable for the increased risk that two authorisations pose to the consumers – and will often make merchants pay for this. Hotels must ask, are these prices excessive, and do they really reflect the actual risk?

Surcharging is a common part of the card process for hotels. From January 2018, surcharging on cards covered by the IFR will be banned as a result of PSD2, so it is vital that hotels have a strategy in place before this deadline to cover the revenue lost as a result of the ban.

Additional security requirements

With many tourists booking their hotel stays online, there is a high volume of card not present (CNP) transactions occurring. With the increased use of mobile apps (25% of online reservations in 2017 were made on mobile phones or tablets), this volume will continue to increase. CNP payments tend to have a higher rate of fraudulent transactions compared to card present, and merchants are often liable for this risk rather than acquirers.

Security is a huge concern for hotels and all savvy merchants should be asking: what consumer card data is needed, what data should be stored and is it secure, and are they PCI compliant?

How can you mitigate these high fees?

Know your rates!

First, and most important, is for merchants to understand the fees they are paying within complex charging structures, and to calculate how any future changes to scheme fees will affect them. Knowing full details of incremental sales for Amex and other three-party schemes is vital for negotiating the best possible rates. Have a clear and well-defined strategy in place for responding to future changes in the payment landscape – from fee increases to the surcharging ban.

Advances in technology

Self check-in kiosks are becoming more popular within the hospitality industry. They offer additional revenue opportunities as merchants are able to offer their customers add-on services and upgrades to existing bookings.

Cross-border payments

Accepting payments from global travellers may present issues for hotels, but the large volume of international card payments also presents opportunities for further revenue. Merchants could be missing out on seven-figure benefits in additional revenue by not offering Dynamic Currency Conversion (DCC). For those merchants that already have it in place, there are a number of questions they should be asking: are hit rates at the highest that they could be, have staff been properly trained, is the mark-up applied to the customer set at an optimal level, and have you negotiated a market-leading share of this mark-up with your DCC provider? DCC arrangements can differ by market, so it is essential that merchants in the hotel industry gain an in-depth understanding of DCC in every country they operate in.

Overall, merchants in the hotel industry face higher fees than other sectors due to complex card processes, high transaction values, and large volumes of commercial and credit card usage. Hotels can make the most of their unique payment profile by implementing optimized cross-border products, considering additional revenue streams, and being proactive in dealing with acquiring and network fees.