FROM TRAVELER TO HOMEOWNER: Navigating Vacation Rental Payouts

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1 FROM TRAVELER TO HOMEOWNER: Navigating Vacation Rental Payouts Copyright 2018 Transpay, All Rights Reserved.

2 In the end, competition and innovation in the vacation rental industry fuels growth and benefits for everyone. The exciting new tools and technologies available enable you to thrive by delivering a greater variety of services and value to your owners, and of course, their guests. - Julian Castelli CEO of LeisureLink

3 The Vacation Rental Payment Ecosystem From home-sharing to glamping, the vacation rental industry is flourishing, with travelers flocking to booking sites to choose unique accommodations for their next trip. Technavio research shows that the Vacation Rental Market will reach $170 billion by Inventory is also on the rise and going global, with sites like Airbnb listing properties in 192 countries. While the sky s the limit for industry potential, when it comes to payment strategy, many vacation rental booking sites are limited in scope, focusing on pricing and payment acceptance options to attract and keep travelers. There is however another critical, but often ignored, component to the travel payment ecosystem: host payments, otherwise known as payouts. Like many other industries, ensuring that cross-border payouts are delivered rapidly and effectively with minimal fees remains a challenge. This issue is especially prominent for paying property owners in emerging markets throughout Southeast Asia, the Middle East, and Latin America, where currency conversion costs are unpredictable and reconciliation times can take up to two weeks. Why does this matter? Simple. As the popularity of vacation rentals and alternate accommodations becomes increasingly global, Vacation Rental Marketplaces (VRMs) are not only competing for customers on an international scale, but for the most desirable inventory too, which means any delayed or lost payment can result in a dissatisfied property and, eventually, a lost listing. 1 Global Vacation Rental Market , ReportLinker. December Page 1

4 The Flow Of Payouts In The Vacation Sharing Economy VACATION RENTAL PAYOUT MODELS Peer-To-Peer (P2P) Agency Managed Guest Vacation Rental Marketplace Host Guest Vacation Rental Marketplace Agency Host Booking/Service Fee Commission Fee eler and funds the hosts directly from their business accounts. For managed property models, third parties collect payments from guests and manage payouts to OTAs, suppliers or the property owners. To complete global mass payouts to hosts, the majority of travel brands rely on international wire transfers. This process, which includes truncating and transferring payment information as messages, uses several correspondent bank channels to facilitate international payment transfers. While suitable for domestic payments, international wire transfers add several levels of complexity and inefficiency. Fluctuating currency costs and high transaction fees (especially in emerging markets) are just a few of the hurdles that have led travel brands to seek other payout methods, such as check processors, ewallets (i.e. Paypal), prepaid debit/credit cards or money transfer services (i.e. Western Union). The rapidly-growing vacation rental industry can be broken down into two primary booking models: Peer-to-Peer (P2P) and Agency Managed properties. The P2P model includes vacation sites, such as Airbnb and Love Home Swap, where guests book accommodations, or even swap homes, directly from homeowners with a marketplace serving as an intermediary. Alternately, there are Agency Managed services specifically for booking alternative accommodations. From reservation to checkout, bookings are completed by third-party management companies, with no communication ever taking place between guests and homeowners. Whichever model is chosen, there exists a need for payments to property owners. For P2P models, the vacation marketplace collects funds from the trav- Page 2

5 BEHIND THE SCENES: How International Wire Transfers Are Completed The majority of travel brands rely on international bank wire transfers to complete global mass payouts.. With up to 12% in fees per transaction, most people are unaware of the exact processes that occur behind the scenes each time they send money through international wire transfers. The below infographic illustrates the cross-border payment transaction journey from sender to receiver. INTERNATIONAL BANK WIRES: THE PAYMENT JOURNEY FROM SENDER TO RECEIVER SENDING COUNTRY RECEIVING COUNTRY SENDER RECIPIENT CURRENCY EXCHANGE Fee Fee Fee Fee BANK A Initiates payment made in local bank BANK B Funds sent to partner bank with access to international currency BANK C Sender s Local Bank Correspondent Bank Payments are Correspondent Bank debited and credited Reconciles the receipt of funds to the recipient s local bank BANK D Receiver s Local Bank Reconciles the receipt of funds to receipient Fees Fee charged for initiating payment Charges correspondent bank fee Charges FX spread and account fees SWIFT Message Fee Charges settlement fee International wire acceptance fee charged to beneficiary Errors Manual instruction may result in payment rejections Insufficient credit or liquidity, or closure may result in delay FX spread could widen Exchange control prevent flow Improperly formatted messages rejected Insufficient credit or liquidity, or closure may result in delay Beneficiary may gets less than expected Page 3

6 Top Payment Challenges For VRMs When it comes to international payouts, however, these options come with substantial drawbacks. PAYOUT FEES As booking engines and operators send mass payouts around the globe, managing the costs DELIVERY SPEED Transfer speeds vary by payout method, service and region. International bank wires and ACH of international payments can be extremely challenging. Huffington Post reports that PayPal can charge fees of up to 7.4%, plus another 2.5% for currency exchange. Western Union marks up currency exchange as high as 10% and local banks charge upwards of $35 per International payouts come with a high risk for missing or lost payments, particularly in emerging markets. deposits can take between three and seven business days to complete in developed markets; however, with more exotic locations and currencies, wires can take up to two weeks to post to the recipient s account. transaction, with additional conversion costs 2. Considering that some vacation rental packages are worth thousands of dollars, these payout methods could easily leave companies paying hundreds of dollars in fees for a single booking. TRANSACTION TRANSPARENCY With few tracking capabilities and even fewer global standards, international payouts come with a high risk for missing or lost payments, particularly in emerging markets. Funds bound for ewallets or prepaid cards pass through multiple clearinghouses and landing banks, with each intermediary adding extra layers of fees, security risks, and the potential FRAUD Current payout methods are susceptible to a number of security issues. ewallets are common targets for phishing and scammers, especially in emerging countries where these services are new and unfamiliar to consumers. In the southern African country of Namibia, for example, media outlets recently warned consumers about scammers posing as bank representatives to steal money through ewallet services 3. Even non-malicious security threats, like lost checks in the mail, or transfer errors, can open up a long and costly process to recoup losses and cost host goodwill. for delayed or lost funds. 2 Smith, Allan (16 October 2015). Foreign Currency Transfer Fees Explained. Huffington Post. 3 FNB again warns of e-wallet abuse by fraudsters, (17 July 2015). New Era. Page 4

7 How Are VRM s Paying Their Hosts? Payout Method Description Pros Cons International Bank Wires International payment messages delivered from bank-to-bank through a transcontinental network of correspondent banks, the most famous being the SWIFT Wire Network The most widely used global financial messaging system SWIFT is the world s largest correspondent bank network Various compliance and security measures to safeguard transactions Many hidden interbank fees on top of standard service, conversion and landing fees Lack of transaction transparency Transfers can take days or weeks to complete Different bank requirements and regulatory laws can lead to delayed or lost payments Prepaid Cards A prefunded payment card (typically sponsored by Visa or Mastercard) that can be used to make purchases or ATM cash withdrawals. Funds transfers are completed in 24 hours or less Strong reporting capabilities Greater transparency Excessive costs for recipients: monthly maintenance, withdrawal, activation fees and more. International beneficiaries pay additional cross-border and FX conversion fees per transaction ewallets A virtual account where funds can be exchanged and stored in a virtual wallet. Enables secure payment transfers without exchanging private information Convenient process for businesses to deliver instant funds to recipients High fees to transfer funds from e-wallet to bank account, with varying transfer speeds Availability is largely limited in emerging markets Money Transfer Services International money transmitter services for paying funds transfers to be disbursed to cash agent locations. Extremely beneficial in cashdriven emerging markets, where credit cards are not widely used. Funds are available to recipients immediately High incidences of fraudulent activity Transaction transparency can be limited Slow to reach recipients Checks A printed form of exchanging bank-to-bank payments. A traditional form of payment that can be utilized across most geographies and economic environments. Recipients are forced to pay for conversion costs Difficult to resolve incidences of lost or stolen checks Not effective for global payouts Leading Alternative Payout Method Independent Payout Networks Independently owned alternative global bank payout services that operate outside of the SWIFT Wire Network; enables local bank transfers using local currencies. Direct transfers (no intermediaries) Fees tend to be significantly lower than other services Faster transfer speeds Can provide direct access to difficult regulatory markets In-house compliance teams Very few payout providers have self-owned payout networks Lack of differntiation and general awareness of payout services with self-owned networks Page 5

8 Payout Processing Checklist For vacation rental sites to mitigate these cross-border payout challenges, a full understanding of available global payout solutions is critical. When evaluating payout methods, travel sites should consider the following: VALUE VS. VOLUME PRICING When selecting a payout method, vacation sites should have a thorough understanding of the TECHNOLOGY As every part of business is shifting to digital, so too should payments. Rental sites should look for fees associated with each model. Are they being payout solutions that eliminate manual processes. assessed based on number of transactions sent or the value of each transaction? Depending the payout need, sites can choose a fee structure and method that reduces unnecessary costs. This transformation means looking for simple and streamlined user experiences with straightforward Application Programming Interface (API) integrations. An API enables travel sites to embed the payment experience directly into their own environment, customizing to their needs, i.e. countries, GLOBAL COVERAGE Rental sites should determine which payout option can reach their necessary markets. For example, while a popular option, PayPal is not available in every country - most recently halting service in Turkey. Other markets have limitations on how much foreign currency can be held, so sending a check in USD may not be a viable, long-term option. Instead, consider local currency options that support countries like Brazil, China and Russia. currencies, delivery options. SECURITY Fraud is not only a problem for accepting payments. Creative hackers, volatile currencies, human error and technology glitches are just a few of the security risks that can jeopardize payouts. Travel sites should evaluate the security protocols and service level agreements (SLAs) that payment providers have in place and keep close watch of payments. Page 6

9 New Players, New Opportunities As the vacation rental industry evolves, new players are entering the market every day. Exciting metasearch startups like HomeToGo and Tripping have spurred new innovations in the vacation rental booking experience. Software products like Guesty and LeisureLink are optimizing inventory management and reducing inefficiencies. And most important, travelers have never been keener to localize their travel experience. As competition grows fierce, online marketplaces and booking sites must explore every option to keep their competitive edge. Payouts can be the key differentiator, helping rental sites balance and meet the needs of travelers and property owners on a global scale. About Transpay Transpay is a global payments service that provides businesses of all sizes with a scalable, secure, and fully compliant cross-border mass payout solution, making it easy to send funds directly to the local bank accounts of vendors, business partners, freelancers or others in over 200 countries. With over 95% market coverage across over 350,000 global payment points, Transpay s mass payout solutions provide vacation rental marketplaces with simplified solutions to pay property owners throughout the world. As a leading alternative payout provider to bank wires, ewallets and prepaid cards, Transpay is focused on providing low-cost, simplified Local Bank Transfers to businesses. To learn more about Transpay s enterprise payout services, visit

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