eCommerce Travel Agency Start-ups

ECommerce travel agency start-ups need to carefully examine the potential risks associated with selling airline tickets online before opening up for business.

• Recognize your potential sales agent liability. Understanding risk exposure can help travel agency start-ups take appropriate steps to minimize it, and to protect themselves from losses resulting from customer disputes and fraud. Sales agents of airlines, for example, may be liable for the entire amount of an airline ticket, if it is disputed by a customer or purchased with a stolen account number. To mitigate risk, travel agencies need to establish eCommerce policies and procedures to address the following factors:
  
  • An approved authorization request indicates that an account is in good standing. However, the response is not a proof that the legitimate cardholder is making the purchase, nor is it a guarantee of payment. In most cases, therefore, airlines are liable for fraudulent "card-not-present" transactions, even when they were approved by the card issuer.
    
  • Even if a travel agency is not a merchant subject to the Credit Card Associations' regulations, the airline partner is. In most fraud-related cases, the airline transfers financial liability to the travel agency partner as part of the contractual agreement.
    

Best Card Acceptance Practices for Hotels

The following best card acceptance practices should be taken into consideration by merchants providing online hotel reservations:

• Obtain an incremental authorization approval if the hotel accommodation time frame has been extended or if the customer has incurred incidental charges. In cases where customers extend their stay beyond the time frame of the original agreement, merchants need to obtain an incremental authorization for the additional transaction amount that will be generated by the extension. The following best practices should be applied:
  
  • Follow standard authorization procedures to obtain an approval for the incremental transaction amount.
    
  • If you receive a "decline" authorization response, contact the customer to request an alternative payment method for the amount that was not approved.
    
• Settle only for the cumulative approved authorization amount if an incremental authorization was declined. Settling only for the approved authorization amount helps merchants minimize chargebacks, processing costs, and potential losses when card issuers decline incremental authorization requests for hotel extensions or incidental charges.
  
  • Submit a settlement transaction for the total approved authorization amount and do not include any amount that has received an authorization decline.
    
  • Obtain an alternate form of payment for the declined incremental amount.
    
• Submit an authorization reversal if the originally approved authorization amount exceeds the actual hotel accommodation cost. In some cases, the actual cost of hotel accommodation may be less than the previously estimated amount for the authorization approval. To complete settlement in such a case, merchants need to submit an authorization reversal for the difference between the authorization amount and the actual hotel reservation agreement.
  
• Understand and apply the final authorization and the 15 percent rule. When the customer checks out, authorization is required in the following instances:
  
  • If there was no previous authorization, authorize the total amount.
    
  • If there was previous authorization, and the actual final transaction amount is greater than the previous authorization amount, apply the "15 percent rule" to determine whether or not an additional authorization is required. To do this:
    
    • Add 15 percent to the previously authorized amount.
      
    • Compare the total (sum of authorization amount plus 15 percent) to the actual transaction amount.
      
    • If the actual transaction amount is greater than the total, an additional authorization is required for the difference between the original authorization and the final transaction amount.
      
• Clearly disclose all terms and conditions of the sale. Before making a hotel reservation, customers should know all of the terms and conditions of the booking. The following information should always be disclosed to the customers:
  
  • The cancellation policy.
    
  • How a "no show" fee will appear on the cardholder's statement (in total or billed separately).
    
  • When the "no show" fee will be billed.
    
  • What name will appear on the cardholder's statement.
    
  The clear disclosure of this information will ensure quality of service and will help avoid unnecessary customer disputes later. For best results, customers should be required to accept the disclosure statement by clicking on an "Accept" or "Agree" button on your website.
• Use the Address Verification Service (AVS) to confirm billing addresses. AVS adds significant value to your fraud control efforts by confirming whether the billing address provided by the customer at the time of the reservation matches the one on file at the card issuer.