Hotels take hit in credit card fees on group bookings
 
Hotels take hit in credit card fees on group bookings
31 OCTOBER 2016 8:19 AM

Credit card commission costs are on the rise and don’t appear to be tailing off. For hoteliers, it’s more crucial than ever to take control of this expense.

REPORT FROM THE U.S.—Hoteliers are feeling the sting of rising credit card transaction costs, especially at hotels with significant group and meeting business. Elevated fees by card processors and group bookings increasingly being paid with plastic instead of check can mean a difference of thousands in revenue, and the situation only appears to be deepening.

To some degree, credit card transaction fees are an expected cost of doing business, particularly with transient guests. However, in recent years, the expansion of credit card points and perks programs have prompted meeting planners and group bookers to use cards for large bookings as well. When paired with growing processor fees, these costs—commonly about 2% to 3% of revenue or higher, sources said—are often now too substantial to simply ignore.

“The points programs are so prevalent now,” said Patrick O’Neil, president of Peachtree Hotel Group. “People want to put things on their credit cards because they get so many points. If you’ve got a wedding, you’d rather put it on your credit card. If we get a wedding or a group, we’d obviously like to have a check, and we try to give them some sort of incentive to try to pay by check, but people want to pay with a credit card to get their points.”

Costs vs. benefits
The plus side for hotels accepting card payments instead of checks is the hotel’s quicker access to the funds from that booking, since checks typically take much longer to clear. Sources said that owners and managers need to weigh the cost versus the advantage, and then negotiate accordingly.

“It used to be, if the group’s going to pay by check, they have to wait 30 to 60 days, whereas if you get the credit card, you can get access to the cash a little bit sooner,” said Larry Trabulsi, SVP of asset management for CHMWarnick. “The cost of getting that cash sooner is the credit card commission, which can be anywhere from 2.5 to 3.5%. If you’re doing a $100,000 bill someone’s settling for a group, you’ll be paying $3,000 for the commission. That’s been the trade-off.”

Trabulsi cautioned that hoteliers also can have the “worst of both worlds,” meaning groups that wait until the end of their stay to settle the bill by credit card, so the hotel doesn’t even benefit from early access. Meeting planners also face a similar cash-flow concern on their end of the transaction.

“There might be a 10-day payment requirement in the contract, but if it’s a credit card commission, the hotel gets the money right away in the eyes of the meeting planner,” said Bjorn Hanson, clinical professor with the New York University Preston Robert Tisch Center for Hospitality and Tourism. “However the entity might not pay for 45 days and not have a penalty, so there’s a cash flow management issue.”

The card companies are playing their part as well, slowly but steadily pushing transaction fees higher. Profit-growth aside, when it comes to hotels, the card companies have their own justifications for increasing fees.

“With cancellation fees or the more common no-show experience, more and more guests are disputing the charges even though they may be legitimate, at least to the hotel,” Hanson said. “Credit card companies are finding there’s many more resources required to deal with all the reconciliation of these cardholder complaints and hotel responses. As a result, [higher fees] are a way to recover those costs.”

Addressing cost
The question, then, becomes how to manage this growing cost. While a hotel could certainly implement a policy where an added fee is assessed for group bookings made via credit card, experts warn that this tactic can sometimes prompt pushback from customers. A potentially more diplomatic strategy is to offer incentives for group customers to pay by check, sources said.

“You’re going to that bribe thing, saying, ‘We’ll give you a 1% discount to pay by check,’” O’Neil said. “You’re hoping to at least get your deposits by check. Everyone kind of has to explore it on their own, because there are different ways to recoup some of the costs. Can you do it on a large scale consistently? That’s where it gets a little bit more difficult.”

O’Neil explained that for smaller “mom and pop” bed and breakfasts or boutique hotels, the answer might be to stop accepting credit cards with particularly high commissions. Or perhaps, hoteliers can attempt to charge a processing fee on group business or on weddings if not paid by check, being careful not to alienate customers. Knowing the hotel’s business mix and client base and how they pay is the crucial first step in that process.

“It’s understanding the mix within your hotel of what you’re paying,” said Trabulsi, who added that often a third-party firm can be extremely helpful to this end. “There are consulting firms out there that can look at your payment processing and find out if there’s ways to save. A couple of pennies on a transaction can add up over time to be ($20,000 to $30,000) a year in savings for a hotel. Understanding all the different fees can be pretty important.”

That’s particularly true considering those fees aren’t expected to remain static anytime soon. While some experts question how far rates can rise before hotel companies reach their breaking point, for now it appears transaction costs will continue to creep higher. And hoteliers will continue to pay, because there’s little choice in the matter. That’s why proactively managing the expense is becoming so vital.

“There’s a desire, certainly, from the card companies to keep raising fees,” Trabulsi said. “At some point, you sort of need the volume to help push back on that, or at least have a lot of viable options out there to keep everybody honest. These card companies are all about added perks and benefits to their members to get preference in the wallet. I don’t see it leveling off.”

2 Comments

  • Gourav Dawra November 3, 2016 1:23 AM Reply

    A big segment of customers/guests today with no or less money in their bank accounts rely on their credit cards and they get reasonable time to settle their debt. without any interest. if they had no credit card or hotels stop accepting / charging extra on cc transactions; this segment may no more be able to spend, directly means LOSS OF REVENUE for the hotels.

  • Gourav Dawra November 3, 2016 1:24 AM Reply

    A big segment of customers/guests today with no or less money in their bank accounts rely on their credit cards and they get reasonable time to settle their debt. without any interest. if they had no credit card or hotels stop accepting / charging extra on cc transactions; this segment may no more be able to spend, directly means LOSS OF REVENUE for the hotels.

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