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Paul here from OwnerRez. 👋 In the age of Coronvirus, we know users are struggling with processors changing rules and locking down on future funding - even changing their policies mid stream. We've been talking to our friend David Goodale for awhile about the processing he does for Canadian merchants (and other international markets) and he had some thoughts to share. David's been doing this a long time, and he was kind enough to put together this article for OwnerRez users and a video as well. Please take a minute to read this thoroughly. You might know some of this already but probably not all of it. Enjoy!
By David Goodale, CEO Merchant-Accounts.ca
Many vacation rental owners have learned that their guests prefer to pay using a credit card. To accept credit card payments, you need a merchant account from a payment processor. There are many companies that offer these accounts, but what merchants often don't realize is the funding terms offered (how much, how often or how quickly you receive your funds) are not all the same.
What you want to avoid is a situation where the payment processor holds back a large portion of your funds when a transaction is processed. When funds are held back it's called having a "reserve" on the account.
For the uninitiated, a "reserve" means that the payment processor will hold back a portion of your funds for a period of time after each transaction is processed. This is usually specified at the point of approval when your account is setup. The percentage of funds held, and the length of time held will vary depending on both the processor itself and the criteria of your rental business.
The impact of this is important because your guest will have paid the money, but you may not receive access to all your funds until a point in the future. This is something that is obviously best to avoid, or at least minimize as much as possible.
In order to build a strategy to reduce or avoid reserves, and ultimately get paid sooner and improve your cashflow, we need to understand the risks as perceived by the processor. For example, right now Coronavirus is spreading across the globe. From a business perspective almost everyone is being hard hit, but travel-based businesses particularly so.
With a rash of cancellations, travel bans, and a poor near term outlook for the short term rentals market, we can easily see the risks associated with accommodation based businesses. From the payment processors perspective, they are worried about chargebacks where a cardholder has paid for something that they will no longer receive. These risks are why many payment processors require holdbacks, rolling reserves or other forms of financial collateral.
A chargeback occurs when a customer (a credit card holder, your guest) calls their bank, and requests that they forcibly reverse a transaction. This is a serious dispute and can occur for a number of reasons. Sometimes it's fraud, where the cardholder did not authorize the purchase; in other cases it can be because an item received might not be as described.
However, for travel merchants, the big risk is for undelivered services. In other words, something could prevent the purchaser from being able to use or stay at the accommodation they have paid for, so the service was not provided as promised. For example, consider the travel bans currently in place because of Coronavirus. Under the card rules, if the cardholder does not receive what was promised – which they can’t, since the government is prohibiting travel or short-term rentals – they are entitled to receive their money back no matter what.
This is the concept of "fulfillment" in the credit card industry. One of the principal protections built into credit card processing is that cardholders are guaranteed to receive what they have paid for. With that in mind, consider a typical retail merchant. If you sell pencil crayons and coloring books they'll ship out shortly, and the cardholder will receive their product soon after ordering. However, with vacation rentals the customer may be paying months or even years in advance of their arrival. This is the general concept of "future delivery" - the cardholder pays for something today, but the order remains unfulfilled until a future date.
The challenge with hotel and short term rental merchants (and broadly the entire travel sector in general) is that things can unexpectedly disrupt the supply of the service, and the payment processor will be left holding the bag for refunds that become due. For example, if a prominent group of hotels were to go out of business, then all of the people who had paid to stay there in the future would need to receive their money back.
The problem, if a company goes out of business, is that they won't have the money to return to the cardholder. Per the Visa and Mastercard guidelines, the cardholders are entitled their money back under a service-not-rendered dispute. If the money has to go back, but the hotel is out of business, where does the money come from? The credit card processor.
As the trading volumes become larger the risk becomes greater. This is called the "Future Delivery Risk" in the payments industry. In terms of the accommodations sector, payment processors could be worried about the following:
The risks start to get more remote as we read down the list (Godzilla does most of his fighting out in the deep ocean fortunately) - but the point is that any perceived risk is a risk to the processor. The more real and likely the risk, the more likely a merchant is to have a reserve (or some type of collateral requirement) put on their merchant account.
This question sounds simple but is actually complex. A single property or a business with a small number of short term units might be considered lower risk than a hotel because a lot less money is being traded.
However, consider the Hilton for a moment. Hilton Hotels have a lot of properties, a lot of assets, and a lot of rooms. If a room was damaged, or even if a whole building was damaged or unusable, it would be very unlikely to affect the entire chain – many guests could just transfer to a different Hilton down the street, and even if not, Hilton has plenty of cashflow to pay for the refund. To the payment processor, they just want to make sure someone is there to backstop the promises made to the cardholder and cover the refund if necessary. In that way Hilton Hotels is obviously low risk, because they are not in any danger of disappearing suddenly.
As we are discovering now, there are some unforeseen circumstances where even large entities can be vulnerable. For example, during this Coronavirus outbreak, Hilton Hotels could conceivably represent far, far more risk than a smaller short term rental business. If nobody can travel, then nobody is going to stay at any Hilton hotels anywhere at all. With no income whatsoever, a previously stable company might suddenly be in dire straits. And if Hilton were to go out of business, many millions of dollars would need to be returned to cardholders, for which the processor, at least conceivably, could become liable.
That is why the question of risk is specific to your business. Processors couldn't reasonably have predicted the Coronavirus, but they could conceive of a similar event occurring. What they can only try to model is the potential risk. From there, they can apply their models to different types of businesses.
That is why different processors have different terms of approvals. One processor might prefer to work with a large brand like Hilton because they feel it's rock solid, where another would prefer a smaller merchant because it's less money flowing through the account overall. It's very situationally specific, based upon the processors risk tolerance and attitude, and also the unique merits of your own business.
Now that we have a good grasp of the risk concepts, we can explore what you can do to lower the amount of collateral held by the payment processor for your account.
The biggest thing you can do to impact the amount of collateral held by the processor, is to minimize your far-in-advance deposits. I will admit, it may seem counter-intuitive to improve your cashflow by reducing the amount of money you collect upfront. However, if you can reasonably minimize the percentage of the deposit, you lower the perceived risk to the processor. This strategy may help with getting through the door with good terms of approval that won't put a hamper on your business.
For example, if you can live with only taking a 10% deposit upfront, you'll vastly reduce the future delivery and chargeback risk for the processor. This should only be a relatively short term thing though, as you can improve on this over time, which we'll explore below.
Another part of the process is to have business policies that stop disputes from occurring. For example, if you want to have a strict cancellation policy with no refunds, it's almost always better to have the cardholder call you than go straight to a dispute. In the refund area of your booking agreement the policy could say that, in the case of special or extenuating circumstances, refunds can be given at the discretion of management. This way, the customer will usually call you first rather than going straight to the bank and filing a dispute. It is to your benefit it you can work something out with the guest to keep disputes down. Generally speaking a refund is always better than a chargeback, unless you have a rock solid case or it involves a lot of money.
Perhaps the most important part of the strategy is understanding that it will take time to improve your situation, by building the relationship with your payment processor. As they get to know you, and as you become known to them, they will trust you more since they see you continuously operating in good standing. If a rental merchant has been with a processor for 10 years, they certainly should be getting more comfortable with your business. Over time they should be okay releasing more or all of your funds without a reserve. You may not get everything you want on day one, but you can and absolutely should work towards it. Working towards it involves several elements, but one of the most important is consideration of the financial picture.
With our Hilton Hotels example, the processor was much more comfortable because they knew Hilton was a large group with a lot of financial strength. You don't have to be a member of the Hilton family to get good terms of approval though. If you operate a business with a solid set of financials, or if you personally have a high net worth and are willing to sign a personal guarantee, you can provide these to the processor to ease their concern. For example, if you run 5 short term rental properties, all of them owned mortgage-free, and all of them having a regular set of guests who have been coming for years, wouldn’t this be lower risk than a new rentals business that is mortgaged to the hilt? Of course it would! These are the type of things that your financials will demonstrate. If you have a good financial story, you should be telling it to your processor, and if you have a good processor they will listen.
That communication with the processor should be an ongoing thing. It's a good idea to write a report annually on the status of your business. It should be very short (underwriter attention spans are short), but it needs to address the important points. This part will be highly specific to each individual business, but for example: pretend that you own 5 cabins in a rural nature setting. If these 5 cabins were of a similar build, it would mean that if one was damaged you could simply move guests to another cabin without affecting a booking. If you compare this to someone with just one rental unit, their probability of an issue or problem causing a cancellation of bookings is much higher. Think of the intangibles that they might not be aware of, but that they should be, and tell them. Just be sure to keep it succinct.
Also, it's no good if you are working with a payment processor that isn't receptive to this information. This tends to be hit or miss depending on the payment processor. Some are quite receptive and appreciative of this information, as it helps them to underwrite and monitor their book of business more accurately. Others, particularly large and slower moving processors may not be able to action this information as effectively. That's why it's important to find a processor that is specialized at working with travel and accommodations merchants, like we are at Merchant-Accounts.ca.
As you build your case with annual reports, an improving financial position, keeping disputes low and as they get to know you, you should be asking for improved terms. If they have collateral on your account, then ask to have it removed. If you are only taking 10% upfront, ask them if you can change it to 25% upfront, especially if you have the same returning guests year over year. Most of all, don't be afraid to ask the question, especially over time. It should be an ongoing and evolving, to your benefit. Of course, if your business is in rough financial shape, or if things aren't going well (for example during Coronavirus) it might not be the best time to ask for a review. So make sure you are putting your best foot forward, be honest, be concise, and be confident. If you operate a good stable business they should be willing to work with you.
This discussion has been mostly about reserves, but there’s one final point to make:
Don't ever let your payment processor raise your rates.
Unless interchange fees have increased there is never a reason to increase a rate on a merchant, except in exceptional circumstances where your business performance has deteriorated or you are getting a lot of chargebacks. If anything happens that causes your costs to go up from your credit card processor, you should challenge it in the strongest possible way. If they still insist on raising your costs, you should switch payment processors. This is especially easy if you are Canadian, since the code of conduct for the credit card industry allows a merchant to move processors at any time if a cost is increased to a merchant. (Again, except where interchange as set directly by Visa or Mastercard has increased – that applies to everyone equally and your processor has no control over it).
Mostly, this discussion has been about arming you with the knowledge to be able to negotiate with your payment processor. The processor should want your business, and accommodation-based merchants can make excellent clients. If you can look through the processor’s eyes and adjust your policies to address some of their concerns, then you should be able to work together to reach a good agreement. Perhaps most of all, remember that it's an evolving partnership and that you should be able to continue to improve your terms over time. You are bringing something to the table and they should be happy to have your business.
If they aren’t, reach out to Merchant-Accounts.ca to get a quote, particularly if your business is based in Canada, the UK or the EU.
About the Author
David Goodale is CEO of Merchant-Accounts.ca and has 20 years of expertise in online payments. David often works with travel merchants and related businesses that have particular challenges when it comes to payment processing, both in terms of rates and reserves or holdbacks. If you have a question David can be reached at david.goodale@merchant-accounts.ca.
I'm really wishing I hadn't switched from the legacy rates editor. Having a few problems:
-I define weekend nights differently depending on the time of the year (eg, off season, weekends are Friday and Saturday, in season, weekends are Friday, Sat, Sunday nights), so being forced to define weekends once for all dates necessitates overriding seasonal rates with spot rates.
-Not being able to set weekly rates is incredibly cumbersome. My weekly discount varies depending on the time of the year, and sometimes even week by week. So now I have to make spot rates for just about everything, making seasonal rates pretty much useless for me.
I'm trying to finish my setup and this has been a major setback for me since I thought my rates were all set and didn't realize that the new seasonal editor would have fewer options than the legacy editor.
I also find it cumbersome to have to define the season dates and minimum stay length separately from where you edit the rates. Why not have that all be in one place?
THANK YOU!
This is AWESOME! I always had a hard time with BDC reservations.
After setting up my length of stay discounts is there a way for my weekly or monthly rates to show in the website?
There are a couple of ways to do this.
If you are NOT using our API connection to HA/VRBO, then you are using iCal imports. You can set these to "Import Bookings only". Then, in your VRBO control panel, you can create whatever blocks you like. They won't be imported to OwnerRez or block anywhere other than VRBO.
If you are using our API connection to HA/VRBO, then you can Change Settings in the HomeAway API controls in OwnerRez, and restrict the days-in-advance that you allow bookings on that channel. You could set it to 1 to basically forbid all bookings, or to 30 to only allow bookings within the next month, etc.
Is it possible to block my OwnerRez calendar from VRBO but still have it available for my customers to book on line? Then when the date gets closer unblock it?
You'd set that up as a Length-of-Stay discount as described here:
https://www.ownerrez.com/support/articles/length-of-stay-discounts
How do I do a weekly discount?
One of the things that's become clear through the coronavirus happenings is that additional levels of control over bookings are very useful even for channel based bookings. Last month we added the Cancel For Any Reason (CFAR) option for Travel Insurance and made canceled bookings more visible in lists and filters and exports.
We've spent the last couple of weeks developing several more in depth features: Required/prep time between bookings and the option to unlink bookings from channel API calendars so you can move them independently.
This option is available in the Changeover Restrictions section of each property's rules. If you want to require a gap between bookings for cleaning etc. you can control that here. The resulting block will be validated for direct bookings and also sent to API based channel integrations.
While we were working in the rules area, we also added an option to use a specific minimum nights in gaps as well as improved and simplified the interface for availability rules in general. Read all about it in our Availability Rules guide.
This has been requested for a very long time. Before, bookings for API integrated channels were controlled by the channel and you would have to make all changes on the channel side -- which means that you could only move bookings around as supported by the channel.
Now, you've got the option to unlink the booking from the channel calendar when moving it around. You should still make the change on the channel if you can, but this allows you to make any other changes regardless of whether the channel allows it or not.
We've also had manual modes for charges and transactions for awhile. Check out our article on Manual Modes for all of the details on the different types of manual modes.
Thanks, Paul! I see it now.
Dewey Getaway said:
Where do we put an address on file? I checked my profile and don't see a place to enter the address.Each property needs to have an address. So go to Properties menu > click on a property to drill in > click the Location tab on the sidebar > change button > fill in address and save. This gives the insurance carrier a destination address when the policy is purchased. If the property has no address, a policy cannot be issued as there is no destination. Also, the carrier cannot verify rules that govern the destination (some consumers cannot buy insurance for certain destinations or the carrier may have that area of the world blacklisted).
Thanks! This post mentions "remember that properties need to have an address on file in order for travel insurance to work." Where do we put an address on file? I checked my profile and don't see a place to enter the address.
Paul W said:
one of the fundamental tenants of insurance law is that it must be something the consumer chose to buy.
Here's a link to info which can be found in OR support docs. There's other info out there which can be found by searching "Travel Insurance."
https://cdn.orez.io/wcnv/docs/RentalGuardian%20-%20Overview.pdf?v=0116da11ea74cfb3b939b87f3a2c5dc676da5f83
What is the travel insurance company that OwnerRez is partnered with?
JTVRs has a good point. There is nothing worse than losing a bookkeeper and having no clue how to take over the job or train another bookkeeper. It is essential in small biz to know what is going on.
That said I do not want to stay in this industry if I have to do every single task to make it work. That is where OR comes in.
Please finish the job of automating the VR workflow and you will gain our undying thanks and loyalty.
Hello, glad to see this thanks but what really hoping for is seasonal adjustments like on AirBnB. I have a year round rate and just apply "seasons" to date bands. Discount some periods, increase some periods - but percentage based. Is this possible? Thanks and regards.
Takes a while to grasp new things.
On my OwnerRez website, is it possible to show a weekly and/or monthly rate with this new Rates Editor? Or I can only share my nightly rates?
@Gabriel - Yep, a video is in the works. It's super simple, though, as you can see from the quick recording above.
@Kismet - With the new system, it'll prioritize specific dates seasons over recurring seasons and shorter seasons over longer seasons -- in our experience that handles 99% of the prioritization needs.
Will that work for you?
@Ann-Tyler - Yep, you configure both the night and the weekend night rate right in the same editor.
Can you create a System Alert when Travel Insurance has NOT been purchased?
From there I'd love to have the option of creating an email to guests to remind them that they have not purchased travel insurance and to state what exactly our policies are once again
I'm hoping this will deter future requests for credits, refunds, moving dates, etc... and explicitly explain that we are held harmless.
I just figured it out - Nevermind!
I love the idea of this new setting, but I'm having some problems with the weekend vs weekday feature. I can't figure out how to configure a weekend rate different from a weekday rate in the same season. Do I need a separate season for weekends vs weekdays?
Like the new set up but we've used the priority system seeing up some of our seasons. What should we do with the old system to make switching easy?
Hey Guys,
This looks good. Are you offering a training video or online seminar that people can join in on? Just to show us how it works?
Thanks
Gabriel
OPCD TX said:
I thought by law in the USA you can not make travel insurance a requirement?This is true. We are going to be amending our settings to not allow the "make required" option. We have heard this as well and the carriers are confirming it. Very few people have that in place, so it shouldn't affect the majority. Insurance is heavily regulated and one of the fundamental tenants of insurance law is that it must be something the consumer chose to buy.
Incidentally, this is why Damage Protection is carefully worded to be insurance for the owner, not the guest, and why it does not involve the guest for verifying damage. If it was insurance for the guest, the guest would have to choose to buy it. When we add "Optional Guest-Selected Damage Protection" option in the future, it will be a different product that covers the guest.
OPCD TX said:
Another question, if the guest booked less than 2 weeks ago but their arrival date is less than 30 days away, are they not allowed to purchase the CFAR because the travel date is less than 30 days away? No matter what, in order to get TI or CFAR TI they must be 30+ days away; am I understanding this correctly?They can buy standard TI on or before the final payment is due or on the booking date or up to 30 days before arrival, whichever comes last.
They can buy CFAR TI within 14 days of the booking date or up to 3 before arrival, whichever comes first. So if it's more than 14 days from original booking date, that's it - can't buy it. If you booked within 14 days of arrival, then it's up to 3 days before arrival.
Now if you book inside of 30 days, then both standard and TI are available on that booking date. The next day (which is no longer the booked date) only the CFAR would technically be possible.
Jami V said:
How does this work for bookings that come from Airbnb and Homeaway?What many of our users do is to use a trigger email to tell Air/HA bookings about TI after the fact and ask them to buy it using the TI guest form link in the email. This can all be done dynamically using email templates and triggers. There is a specific criteria on triggers to only send if TI is not purchased and still available.
Here's an example email template that you might send about buying travel insurance:
You just booked a reservation for {PDISPNAME}, and I wanted to take a moment to talk to you about travel insurance!
As it states in the renter agreement, we do not give refunds or move bookings based on severe weather or travel restrictions. This is specifically mentioned in the renter agreement as an Act of God event. This is standard practice throughout the vacation rental industry but every year it still takes some guests by surprise when they get unexpectedly blindsided by a storm or illness.
You can still buy travel insurance now but it will no longer be available within 30 days of arrival. If your booking is less than 30 days from now, you can buy it as long as you buy it the same day (or 24 hour time period) that you booked. You can also buy Cancel For Any Reason within 14 days of the original booking date.
The price of the policy is fairly cheap (about 7% of your booking amount) and well worth it if you need to cancel or interrupt. If you're wondering what all is covered, our travel insurance page covers that in detail and also includes a link to the Terms and Conditions so that you can read the fine print.
Visit this link to buy a travel insurance policy for your booking:
{BUTRAV}
-{MYCOFIRST}
In the above text, you might create clickable links around some of that language and the link at the end.
For those of you who've been with OwnerRez for awhile, you've encountered (and fought with!) the rates system. We've added and enhanced it over the past decade, including new concepts like spot rates, but the underlying rates and seasons concepts and editors have been basically the same for that period.
Over the holidays this year we did a lot of thinking about rates and came up with a new modernized design that makes seasonal rates simpler, more powerful and a LOT easier to work with -- using a similar editor as Spot Rates has in the Rate Calendar.
Note: If you're not using seasons/seasonal rates at all and are just using spot rates, or are using a tool like Pricelabs, this won't affect what you're doing now. But if you like the idea of being able to set seasonal default rates, then set spot rates on top, this makes it a lot simpler to do that!
We've been hard at work on the new rates system and editor ever since, and are proud to finally announce the culmination of all of that work!
The new rate editor puts your seasons and seasonal rates all on one screen and lets you set and update the amounts at a click. That gives you a foundation of seasonal default rates which you can then override with spot rates to tweak amounts for specific dates. Read more about the seasonal rates editor.
We've also removed a lot of the fiddly settings that tend to trip people up -- like priority, stay allowed, rate length and taxability, etc. -- in favor of simple rules based settings like Length Of Stay (LOS) discounts that play well with spot rates and are supported by channels.
If your account doesn't use any of the old concepts, you've been automatically upgraded to the new rates editor. If you have been using the old concepts, we haven't upgraded your account yet and left it in legacy rates mode for the time being. There is an upgrade tool you can use to convert to the new system.
We've got a lot more updates planned over the next year, both for the new seasonal rates system and the spot rates system. Very excited to see these two concepts coming together to make a powerful whole!
