The True Cost of African Travel Payments The global travel industry spends $70 billion annually on payment fees, with 5.4% of all travel expenses going towards payment companies.
Whilst this is a global problem, Africa is the worst affected, frequently costing as much as 8% to get paid by international travellers. International banks also frequently block transactions billed from Africa, resulting in conversion rates of less than half of global norms.
Why is payment processing so expensive in Africa?
In large first-world economies, payment companies are fiercely competitive, and governments often regulate interchange fees, which results in acquiring rates as low as 0.3% for large merchants. Merchants also have much more flexibility around what currency they bill and get settled in, which allows them to avoid FX fees billed by the cardholder's bank.
The payment industry in Africa is comparatively smaller and less competitive. Interchange fees set by governments are high, and African travel merchants are often wrongly considered to be at a higher risk. Many African currencies are also relatively illiquid, resulting in higher foreign exchange rates.
The outcome is high fees and a subpar user experience for cardholders and African merchants. African travel merchants are charged a fee between 2.5% and 6%, depending on their size and location. Meanwhile, cardholders who convert their funds into African currencies are typically charged around 4%. The result is total fees for collecting payments from abroad of between 5% and 8%.
What is TurnStay doing differently?
TurnStay operates in much the same way as many of the world's foremost online travel agencies (Airbnb, Booking.com, Expedia, etc) as well as major airlines. These companies have legal entities in the world's major economies, allowing them to bill their clients domestically in local currency, drastically reducing payment costs whilst improving conversion rates.
So, for example. If an African merchant using TurnStay bills someone from the UK, we will route that transaction via a payment company in the UK and bill them in GBP. The net result is that you, as the merchant, will only pay 1 % for this transaction, and your customers avoid the expensive FX that their bank typically charges them.
To operate like this, TurnStay acts as the merchant of record, which means we are responsible to the cardholder for the ultimate delivery of the service they have paid for and for upholding the terms and conditions of the original booking. Like Airbnb, TurnStay keeps funds in escrow until the booking date, meaning cardholders and merchants are 100% protected from chargeback liability until the booking happens.
Reducing chargeback risk allows TurnStay to pass on far lower rates to merchants, speed up onboarding and create a localised payment experience. It also makes accounting far simpler since cash flows simultaneously as the booking.
So if you have a travel company and these problems sound familiar, please get in touch. We can save our clients around 50% on their overall payment costs while significantly improving international card conversion rates.
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