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The Green SheetGreen Sheet

The Green Sheet Online Edition

July 23, 2007 • Issue 07:07:02

Street SmartsSM

Lust for the lodging market

By Dee Karawadra
Impact PaySystem

There are many promising areas in which you, as ISOs and merchant level salespeople (MLSs), can increase your residuals. Two of my favorites are the petroleum and lodging sectors. I have written previously about the petroleum industry. Now I want to discuss the lodging market.

Why look at lodging?

Just like petroleum, lodging has good volume, minimal competition and great profits. But unlike petroleum, you can write almost any hotel, motel, inn or lodge, be it branded or unbranded.

Slick Streetman, a regular poster on GS Online's MLS Forum, wrote: "Hotels and motels, as a whole, do a huge volume. I have met MLSs that specialize in them, and their portfolios are fat and profitable."

The hospitality sphere may have a little more competition than petroleum because it is not limited to a few processors. But the fact that you are not limited to unbranded businesses opens up a lot more opportunities.

What's up with software integration?

One of the challenges for ISOs and MLSs working in any vertical market is smooth software integration. There are many types of software used in the lodging realm. However, each company generally stays with one type of software across its chain. The two types of credit card processing software commonly used in the hospitality industry are property management system (PMS) applications and middleware.

PMS applications enable specific functions such as the creation, management and editing of room reservations. Middleware connects software components and applications and can support complex distributed applications such as Web servers and content management systems.

PMS applications may require middleware to work effectively. Software vendors generally will charge you to switch customers to new processors.

However, it is well-worth the price to avoid involvement in the reprogramming process. You just provide the vendors with the necessary programming information. They do the rest.

Middleware may have multiple processing partners, while PMS may be limited to just one. The best way to find out if your processor is certified with a particular software application is to call its tech support number.

Generally, tech support reps need the product's property number, so have that handy when calling.

Not all hotels use fancy check-in/check-out software. Some independent (unbranded) hotels may be on a manual system. In this case, you can use any of the payment processing equipment and applications that are certified for lodging through your processor.

Lodging applications should have basic information and capabilities such as folio number, check-in/check-out capabilities, pre-authorization (for the approximate total cost of the stay, plus 15%) and settlement.

Will hoteliers give me chargeback headaches?

One of the most aggravating things for hoteliers is no-shows: people who make reservations and then don't show up. During the peak season, this can cost a business thousands of dollars.

In its Tips for Hotels brochure, Visa U.S.A. estimated the annual cost of no-shows to be between $50 million and $100 million, or 1% to 2% of guaranteed reservations.

This means of the 1% to 2% of guests who do not show up and are charged, many end up causing chargebacks. Visa and MasterCard Worldwide have created a lodging program that allows hoteliers to charge a deposit for one night's stay plus tax if the customer does not show-up.

There are advantages to the guaranteed reservation for both the hotelier and the consumer. The guarantee assures consumers that their rooms will be available when they arrive.

And it assures payment to hotels when cardholders fail to claim rooms or properly cancel their reservations.

Hotels can take actions to reduce chargebacks caused by no-shows. But there is no promise that chargebacks will be denied even when a hotel follows all the rules set by the card Associations and properly explains its no-show policy to consumers.

However, following the rules does reduce the number of chargebacks that receive final approval. For the best results, a hotel's cancellation policy must be posted prominently on its Web sites and stated by telephone reps when they accept reservations. If a guest does not arrive as agreed, the hotel should send an invoice and explain why the customer has been charged for the unclaimed room.

When accepting a reservation, the hotelier also needs to get the cardholder's name, address and telephone number. If a chargeback occurs, the merchant must provide this information along with the scheduled check-in date, confirmation number and a copy of the invoice sent to the consumer explaining the charged amount.

Chargeback procedures for the lodging and petroleum industries were among the first things I learned as an MLS. This allowed me to explain them to merchants and break the ice. Then I could talk about earning their business.

Why should I educate merchants?

The advantages to educating merchants are myriad. When you share your expertise, your customers become comfortable, knowing that you understand this industry. If, during your sales pitch, you explain the benefits of taking deposits and how to reduce chargebacks, merchants will be more willing to talk with you.

MLS Forum member Imhogwyld explained the rewards of merchant education: "The merchant account will be given over to you not for the idea of how low you can go but because you took a deep personal interest in them."

Educating hoteliers on how to reduce no-shows helps their bottom line. Here are some actions merchants can take to do just that:

  • Always clearly disclose the cancellation policy. For example, make it known that customers who cancel at least 24 hours prior to their arrival date will not be charged. And those who cancel later will be charged.
  • Make reminder calls. This gives guests the opportunity to get additional information such as directions. It also verifies that they actually made reservations.
  • Get advance deposits for multiple-room reservations.
  • Mail confirmations to verify billing addresses. This also confirms addresses for mailing invoices in no-show cases.
  • Teach all employees the proper way to take reservations.
  • During peak times, require deposits from all customers.
  • Only accept reservations from the person named on the bankcard being used in the transaction. This is hard to do over the phone, but always verify that the person making a reservation is the cardholder.
  • Be (or use) a secret shopper to help ensure that employees are following proper reservation policy.

Most branded hotels already have many of these procedures in place. Nevertheless, reminding merchants of them scores you some brownie points. Sharing targeted knowledge helps earn you credibility.

The lodging market has many different aspects. Don't let this intimidate you. With a little homework, you should be confident enough to go after merchants in this sector.

Many hotels are owned and operated by certain ethnic groups; once you get a seal of approval from one, the rest tend to follow.

I hope this has given you a glimpse into the world of lodging. Think about this: Blackstone Group recently agreed to buy out Hilton Hotels Corp. for over $20 billion; there must be something to the hospitality market.

As always, if you have any questions or need help in figuring out the software, don't hesitate to call me.

Safari njema (safe journey). end of article

Dee Karawadra is the founder, Chief Executive Officer and President of Impact PaySystem, based in Memphis, Tenn. He and his team have a wealth of knowledge on the merchant services industry, with a niche in the petroleum market. Dee's experience on the street as an agent has guided him in laying a foundation for an agent program that is both straightforward and lucrative for his agents. Contact him at 877-251-0778 or dee@impactpaysystem.com.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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