January 17, 2018 | AITO – Association of Independent Tour Operators
14th January, 2018
Following inaccurate media reporting of the new credit card rules – EU Payment Services Directive 2, introduced yesterday – the organisation representing travel specialists, the 120-strong Association of Independent Tours Operators (AITO, www.aito.com) sets the record straight:
(a) It will increase holiday prices across the board – not only for those paying by credit card but also for those paying in cash, plus those booking direct via the web. The travel industry typically works on very low margins – 1.5% profit before tax is not unusual. Absorbing the 2% bank charge on credit cards while operating at such tiny margins is thus impossible; it will force holiday prices to be increased – an own goal for the Government.
(b) Making credit cards free to use is bound to encourage many more consumers to pay by credit card and thus, potentially, to get into debt. This is something that the Government purports to be concerned about, as of course it should be.
(c) The resultant increases in price across the board will simply fuel inflation – again, something the Government should seek to avoid.
(d) The travel industry has, to date, typically charged 2% for accepting payment by card. This is not profiteering – it is simply recharging the cost charged to travel companies by the card companies, ie the banks. (Research amongst AITO member companies has proved this 2% charge to be the minimum consolidated cost charged to tour operators by the credit card companies; many of the plethora of cards on the market charge even more to those businesses that accept them.)
How has such an unsatisfactory situation arisen?
(e) On 24th July, 2013, the EU proposed a cap on bank charges for credit and debit card transactions of 0.3%. This was adopted in the UK on 8th June, 2015 and should have been of benefit to consumers. However, the merchant acquirers (bankers) simply increased other administrative fees, negating any consumer advantage, to maintain their profits. This has nullified the intended benefit to consumers.
(f) It is erroneous to blame the travel industry, including AITO members, for passing on such charges to the consumer. The villain is actually the banking sector, which should be called to account by Government and required to lower its fees and to curb its super profits.
(g) Travel agents work on a fixed commission rate (typically 10%) from their suppliers, yet with PSD2 they have to absorb the 2% bank charge within that commission payment. This means a catastrophic 20% reduction in their income, straight from their bottom line. Government has ignored lobbying in this respect despite the problems it will cause such SME businesses.
(h) In an attempt to help its affiliated travel agents, AITO encouraged its tour operator members to increase their commission rate by 0.5%. This was not mandatory; about 20 AITO operators have done so in an attempt to help their retailers cope with the 20% hit on their bottom line.
(i) The end results of this misjudged and miscalculated Directive are:
Says AITO Chairman, Derek Moore: “There is no doubt that this a dog’s dinner of a mess – all totally avoidable had the Government listened to the travel industry and concluded that control of the UK’s wayward, profiteering bankers was an essential part of the scenario.
“The solution is for the Government to address this unfair state of affairs – of which they are fully aware – quickly, to avoid lasting damage to the SMEs of the travel industry. Government needs to freeze bank charges at the 0.3% level originally required by the EU.
“I urge Mrs May and her Treasury colleagues to pay careful attention to this parlous state of affairs and to take action, both to protect the consumer from the misery of unnecessary debt and also to protect the specialist agents and specialist tour operators in the UK from having to incur such nonsensical costs courtesy of our Fat Cat banking industry.
“Voters will doubtless thank her, too, for preventing a totally unnecessary increase in their holiday prices.”