Most hoteliers don't know how much they're paying for transactions. Do you? Sure, many can tell you their Booking.com commission rate, yet, if you start digging and asking (the right) questions, you'd be surprised to realize that payments fees are out of sight and out of mind. Chances are that if you knew what you were paying you wouldn't be particularly thrilled with the credit card transactions fees you pay.

Typically, hotel payment processing fees on transactions range from about 0.7% to 3.5%, and that eats into profits. However, if this is not bad enough, many other "invisible" costs are involved with payments. And some of them are so well-hidden that it can take years for even the most savvy hoteliers to get a full grasp of the ecosystem tolls. Many hoteliers are overpaying their providers without even realizing it. But don't be fooled: when selecting a processor, only considering transaction fees is, at least, misleading, so if someone is undercharging you there, it's very likely they're adding a markup somewhere else. There are so many players interested when it comes to payments, so it's relatively easy to bury another fee or two here and there without the hotel even discovering it.

Payment: A Long Journey

Whenever a transaction is made (online, in person, via phone/email, etc.), there are at least seven parties involved:

The consumer: in hospitality, that's the guest. Usually, he's the cardholder or the person paying for the stay;

The merchant: the business which is selling the services (or the products for the retail industry). In our case, that's the hotel;

The gateway: the technology needed to connect the hotel to the payment processor.

The payment processor: it enables the communication between the hotel, the credit card network, and the guest's bank;

The credit card network: it's the guest's credit card brand (Visa, Amex, Mastercard, etc.);

The issuing bank: the guest's bank making the payment;

The acquiring bank: the hotel's bank receiving the payment.

This means that, during each step of the payment, extra charges can be applied, sometimes indiscriminately. Here are some of the primary examples of additional costs:

Buy rates: processors' costs associated with opening and maintaining the merchant's account. They are, basically, the acquiring bank's fees, made of the interchange + the acquiring bank's markup;

Card issues charges: charges made by the card-issuing bank based on the type of the card and its location. For instance, EU-issued personal debit cards are capped to 0.2%, while credit cards to 0.3%. Business cards, on the other hand, are not capped. Booking.com's issuing bank, for example, charges an additional 2% for its virtual card. (Yup, if you do the math, receiving payment through BKG's card will cost you up to 1.8% more than a debit card...);

Card scheme fees: fees charged typically by the card brands. Although not very high, they can vary and be very complex;

Card tokenization charges: To charge a credit/debit card, a PMS should receive (usually from a partner, such as a channel manager or a booking engine) the number first, and then, tokenize it. Tokenization assures secure storage of credit card numbers and PCI compliance, so it's a crucial service. Here, however, is where systems tend to apply very different rates, and when hotels usually don't look. The payment gateway we use charges 0.05€ per tokenized card, but we've seen PMSs charging four/five times that amount. Moreover, some systems even apply "double tokenizations," meaning that they charge twice if a guest, for example, modifies his reservation on an OTA. Yes, a guest postponing the check-out date can cost you double what you already paid... Sure, a small property could not even notice it, but what if you're running a 100+ key hotel?

Payment gateway fees: these are typically charged for initializing a transaction (it can be a payment, a refund, a preauthorization, collect/cancel of preauthorization, etc.). The cost can vary from gateway to gateway, and some systems may also add a markup.

Wire Fee: some acquirers charge a fee every single time they send a settlement. If you, like ourselves, receive one a day, that can become quite expensive very quickly. Moreover, your bank may charge you an additional wire fee, making things even worse.

How to Save Money on Payments

So, how can you avoid falling into this trap and overpaying for your transactions? Unless you have a complete understanding of how payments work at a higher level, it's challenging get the entire picture.  Start by asking the right questions to your provider. Don't settle with the "we offer the lowest transaction fees in the industry." That's just the marketing department talking, and it won't save you from all the "invisible" costs. Instead, download the latest invoice and start checking all the entries. You may not understand all of them, but at least you now know where to look.