Solution to merchant services difficulties for BCH members
By Tim Deakin
Chronic unease displayed by some merchant services providers (MSPs) around card payment facilities for companies in the travel sector – including coach operators – has been mitigated to a degree by ABTOT, which took over stewardship of the Bonded Coach Holidays (BCH) consumer protection scheme from the Confederation of Passenger Transport (CPT) on 1 May.
ABTOT is one of two bodies that can provide bonding to enable travel organisers to comply with the Package Travel Regulations. Its focus is on packages that do not include flights. ABTOT holds a bond from each of its around 300 members, approximately 100 of which are part of BCH. If a member fails, its bond is used to refund customers that have not yet travelled and to bring home those that are on holiday.
ABTOT is closely regulated by the Department for Business, Energy and Industrial Strategy. All members are required to submit quarterly returns as part of that process. Bonds are set as a percentage of each business’s projected sales.
It also has a legal helpline that is provided by travel law specialist Travlaw. That forms an important part of the assistance that ABTOT has already offered to BCH members during the current period of difficulty with MSPs.
Various avenues to overcome MSP difficulties for BCH members
The Travlaw tie-up has proved useful to some BCH members. Travlaw has routinely written to MSPs that have served short notice that a contract for merchant services between the MSP and a BCH member is to be terminated. Such intervention often succeeds in gaining a grace period, giving the business concerned more time to secure an alternative facility.
What neither Travlaw, ABTOT nor BCH can do is to force the MSP to change its mind about the act of terminating the contract, however.
“We have provided support in the wider context of trying to slow MSPs’ actions to reduce their risk, but a lot of the matter comes down to the contract between the MSP and the travel organiser,” says ABTOT Membership Director Samantha Bradbury. “The fine print in those is like nothing else. They can run to several volumes.”
But a longer-term solution for its members to difficulties with MSPs can be examined on an individual basis by ABTOT. Under that arrangement, ABTOT would take on responsibility for chargeback claims that MSPs could be exposed to should the business concerned become insolvent. Worry about that risk is at the centre of many MSPs’ current aversion to working with the wider travel sector. Removing it goes a long way to nullifying any unwillingness, she adds.
Chargeback risk to MSPs is mitigated by scheme
ABTOT currently has agreements with MSPs Fiserv and Paysafe that enable it to take on liability for chargeback claims under insolvency protection. It is in negotiation with at least two other MSPs to come to the same arrangement.
Under those terms, ABTOT does not deal with day-to-day charges. But such an approach removes the risk of wide-sale chargebacks to the MSP in the case of a business’s failure. That makes working with it significantly more attractive for the MSP.
However, doing so increases ABTOT’s ultimate liability. There is thus no automatic acceptance onto this scheme for the member concerned; approval is subject to underwriter acceptance, and beyond that, annual review.
“But the service is there. It has helped several BCH members that have come up against sudden hostility from their previous MSP.
“We have been able to transition them to either Fiserv or Paysafe, which allowed them to continue to trade under the protection of ABTOT,” says Samantha.
Where the operator already has a contract with either of those MSPs, ABTOT can help them to move onto the different arrangement whereby it accepts liability for chargebacks after insolvency.
BCH members already helped by ABTOT
When ABTOT takes on the protection of an increased amount of consumer funds, it must consider its own exposure. “We need to ensure that each member that takes up the offer has a bond that is sufficient,” says Samantha. “Every BCH member is free to contact administrators Bernice Molloy or John Miller, or myself, to see whether the scheme could benefit them.”
ABTOT has helped approximately seven BCH members in this way since the COVID-19 pandemic broke. At the time that routeone spoke to Samantha and John, there was around the same number of enquiries in hand. Samantha adds that some BCH members have been able to negotiate a solution with their MSP themselves, and thus had no need for any further assistance.
What remains more difficult is unplugging the blockages created by MSPs that have terminated merchant services contracts with coach operators but continue to hold funds. One such business in that position told routeone in May that it had £200,000 in limbo – money that it urgently needed as it began the recovery process [routeone/News Focus/June].
“This is where we would refer the BCH member to Travlaw,” says John. “It has also been successful in obtaining a solution to this problem.”
‘Strongly argued letter’ may be ideal
Samantha adds that the terms originally agreed between the travel business and its MSP are the primary factor in play where funds are withheld by the MSP after a contract is terminated.
That gives the MSP significant power, but she says that some of those terms could be deemed to be unfair. In that situation, “when MSPs are presented with a correctly worded and strongly argued letter, a lot have backed down.
“Those that do not are finding that they are losing their travel book, although that appears to be their strategy anyway.”
It is important for the business concerned to remember that while an MSP may have terminated the contract between the two parties, the MSP retains chargeback liability against monies it has already taken.
That, she says, is the most likely reason that some MSPs are holding operators’ funds after termination; it is “a desperate attempt to offset their perceived risk build-up.”
Coach operators: Low risk of insolvency?
John believes that while MSPs are evidently not demarcating between the wider travel industry and the coach tourism sector, they should be. Coach operators generally “have a lot more assets” than other travel companies, he notes. While the failure of Shearings and National Holidays parent Specialist Leisure Group in May 2020 shook confidence, the number of other insolvencies has been “negligible.”
“BCH recently issued renewals, and apart from one business that has finished trading, all have continued their membership. That points to the stability of the coach tourism sector compared to the wider travel market.”
Samantha confirms that a heavy-handed approach from MSPs is common across the travel industry. It is not focused specifically on coaches. “Some ABTOT members that do not major on the coach market have seen similar difficulties. We have helped several of them onto our scheme.”
Trade body RHA has already opined that the coach industry’s difficulties with MSPs will resolve themselves reasonably quickly when normality returns. That view is understandable; MSPs’ worries are based around perceived risk, and the coach sector is stable under normal conditions.
ABTOT and BCH can only assist and advise coach operators that are in the package tour realm. But their experience of doing so thus far demonstrates that there is more than one possible solution to the hostility shown by MSPs that may be reached in the meantime.