Online credit card processing guide for small hotels and B&Bs

Online credit card processing capability is essential in a world where most guests want to book online. 

People who book online are all about convenience – and that includes having access to a simple, user-friendly and secure payment process. In fact, convenient payment processing is top of mind for travellers who book online regularly. You need to make sure that you’re catering to their preferences to maximise your reservations.

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Common pain points for hotel guests can revolve around online payments, and tighter regulation is only going to make it tougher for property owners to overcome these, unless you have the right payment processing solution in place

Lucky for you, everything you need to know about online credit card and payment processing at your property is right here on this page.

Small hotel online credit card processing

Accepting online payments is all a part of accepting online bookings. It’s important that property owners keep up with the changes in the hotel payments industry, because knowing how guests prefer to pay for their rooms is vital for maximising bookings at your property

A key aspect of operating a small hotel is developing an online presence that allows you to attract guests. In light of this, it’s critical that you offer your guests an opportunity to book with you directly on your website. But how do you get paid? 

Let’s start with the basics of online payment processing. In general, there are four parties involved in any credit card transaction:

  • Merchant – That’s you; a person or company that sells goods or services, such as rooms at a B&B or hotel.
  • Customer – Your guests; a person paying for goods or services, such as a room at your B&B or hotel.
  • The acquiring bank – Your bank account
  • The issuing bank – The customer/guest’s bank account

Online credit card transactions are typically processed in a matter of seconds. Here is what happens:

  1. A customer books a stay at your hotel using a credit or debit card.
  2. That information goes through a secure, encrypted payment gateway.
  3. The payment processor sends a request to the customer’s issue bank asking for the transaction amount.
  4. The issuer either approves or denies the charge.
  5. The payment processor informs you that the charge has been accepted and tells your acquiring bank to credit your account.
  6. The card issuer sends the funds to your bank, where the money is then deposited into your account.
  7. The payment is fully processed and the funds are available.

Special circumstances for hotels

As a member of the hospitality industry, many of your online transactions are considered “high risk” because you regularly conduct:

  • “Card not present” transactions: You are taking the payment information online or over the phone
  • A transaction amount over $1,000: Luxury or extended stay vacations may often cost over $1,000
  • The product will be delivered in the future: Guests pay for a service they won’t experience for several weeks, months, or maybe even a year

Blog sections:

Online payment processing: UK & Europe

If you’re a property owner in Europe, there’s something else you have to consider when it comes to online payment processing. Strong Customer Authentication (SCA) is a set of regulatory requirements that will take effect on 14 September 2019, designed to make paying online more secure and, consequently, reduce payment fraud. 

SCA adds an extra layer of security when customers make a payment online, and this means EU-based property owners need to take steps to be compliant, or you risk not being able to receive online payments.

Haven’t heard of SCA? Or don’t have a plan in place to become SCA compliant yet? Click here to find out everything you need to know about SCA and what it means for your property.

Moving from offline to online credit card processing for small business

Are you processing bookings and payments via offline methods? You’re missing out on a whole world of opportunity. Consumers are increasingly willing and able to shop for nearly any product or service online – including hotel rooms. They trust this medium and prefer the convenience online shopping affords them.

Naturally, this means that they are also more willing to provide their credit card or payment information online. This level of consumer comfort and confidence has led to a direct increase in online bookings for hotels across the globe, via direct websites and online travel agencies (OTAs) like Booking.com.

You might be thinking, “Why should I change from my current offline system? My payment terminals already work.”

Here’s a glimpse of what your hotel looks like with and without online payment processing:

Without online payment processing…

When taking the payment, you begin the process by requesting the credit card information from your front desk, and then you are sent an access code. You have to log into your email address to retrieve it.

Once you have the access code, you can view the details of your guest’s credit card. At this point, you are able to process the payment using your payment gateway or physical card terminal. Once the payment has been processed, you must record it yourself in your front desk management system.

And that’s not all. When your guest checks out, any remaining balance to be paid has to be processed through the same set of steps – all over again!

With online payment processing…

You begin the process by logging into your property management system to process the payment.

Also, since credit card details are already stored securely in your front desk system, all you need to do is choose the card you have on file and process the remaining balance when your guests check out.

Your PMS has an integrated payments solution, or is fully integrated with a payment gateway, which automatically records it into your front desk.

Why should you be taking credit card payments online?

Still not convinced? Then let’s delve into three good reasons to make the transition:

  1. Save money and time

The reality is that the lower headline percentage processing rate you pay for your current POS terminal is not the full picture. Your current terminal is, in fact, more expensive than using an online solution because of the hidden costs. It is important not to just focus on the processing cost represented by that headline figure. 

The higher percentage for an online system also includes fees for new services that are crucial in saving you money in the long term such as card data storage. So consider what the total cost of ownership really is.

If you are still stapling receipts at reception then that means the manual consolidation of these accounts in your back office is ripe for change and huge cost savings can be made. Although there is plenty of money to be saved, it is important to remember that these savings are not as direct and tangible as those eye catching processing commission rates, which entice you to make like-for-like comparisons.

  1. Increase your revenue
  • The ability to accept more payment methods is crucial to help boost bookings.
  • Pre-payment and quick payment solutions decrease customer friction points and gives an opportunity for revenue growth. Cross-selling other products and services during the customer stay becomes incrementally easier. An improved guest experience is the non plus ultra for revenue generation.
  1. Improve your guest experience
  • Guests can pay with more methods and in their preferred currency
  • The seamless automation of payments using stored card data improves the guest experience by reducing friction. A guest can give their card details once when pre-paying for their room and should never be troubled again
  • Guests’ private card information is infinitely more secure. Local terminals and many other options still don’t support encryption or direct addition – emailing, faxing and photocopying of credit cards is still common in the hotel industry.

Now that we’ve (hopefully) convinced you on the why, let’s look at the how of processing online payments at your property.

What is online payment processing software?

Online payment processing software – more commonly known as an online payment system or online payment gateway are third party services that process card payments on behalf of your hotel. They will usually take a small percentage of each reservation for the use of their service. Examples include: Stripe, PayPal Express Checkout, PayPal Payflow Pro and Payment Express.

But while your standard online payment system or gateway might be sufficient for some small businesses, property owners have a unique set of challenges, and using a third party solution can only do so much.

You need a way to make the online transactions import straight to your front desk to truly be effective. That’s where an integrated payment system comes in – a tool that allows transactions from credit/debit cards or mobile payments to be processed directly within your property management system (PMS). This means there is no need to swipe cards or manually enter transaction details into a terminal. Payments can be processed at the click of a button with the details securely saved in your PMS.

Why your hotel needs an integrated online payment system

We are at a point now where businesses that aren’t implementing the latest technology are at a distinct competitive disadvantage. One such area is payment processing.

To automate your B&B’s payment processing system and provide guests and staff with a hassle-free way of making payments, you need an integrated payments solution.

Offering guests a payments solution that allows for smoother checkouts and frees up staff resources is one of the most important new standards for your property. An integrated payments solution is a critical business tool that will streamline transaction processes at your property.

The biggest benefits of an integrated payment solution (meaning one that is built in to your PMS) at your small hotel are:

  1. There’s no double handling of your payments – The integration of a payment solution with your PMS allows for full automation of payments, saving you time and minimising human error. Everything is taken care of from one convenient location, which minimises your risk of losing information during the process – either charging the wrong amount, or failing to reconcile payments made. Plus there’s minimal risk of human error thanks to an integrated payment solution’s ability to provide you accurate, error-free verification and data entry.
  2. Your cash flow becomes more efficient – There are far fewer errors in an automatic payment processing system, which means that you receive the money that you both need and deserve in your accounts. Plus, the time it takes for the payments to reach your bank account speeds up significantly, providing you with your income as quickly as possible. 
  3. Cut costs – Not only will you not have to hire a staff member to monitor transactions, verify financial data, or maintain bookkeeping, you’ll also be free of bank merchant fees. An integrated payment solution will offer a dashboard with detailed reporting allows you to become even more financially efficient, while you can also intelligently manage potential fraud and disputes to reduce losses from them. You don’t need to spend time dealing with your local bank or set up a payment solution yourself and have a finance person sort through difficult to read financial reports. This empowers your organisation and finance team and, as your hotel scales up, you won’t need to hire additional finance people.
  4. Cancellations and refunds are a LOT easier to process – Without an automatic payment system, it can be difficult – and expensive – to process cancellations and refunds. In fact, some banks charge you a fee to process refunds. This ultimately takes its toll on your hotel’s bottom line. With an automated system, refunds and cancellations are a quick and efficient process that costs less.
  5. You provide a better guest experience – Perhaps the biggest benefit is that you’ll be delivering better customer service. The integrated payments solution helps you provide a faster, smoother, guest checkout experience. Instead of asking guests repeatedly for payment details, you can process transactions and send receipts with a click of a button using the card details saved securely on file. This provides your guests with an unmatched experience in which they receive the exact results they are looking for, and thus improves your brand image and reputation within the travel industry.
  6. You only have to deal with one provider – Another benefit of an integrated platform is that you have a unified experience with only one point of contact for help. With separate systems, interactions can be riddled with delays and complexities on account of having to deal with multiple parties. An all-in-one PMS with an integrated payments solution is the way to go!
  7. You don’t have to deal with merchant accounts (and their fees!)… read the next section to learn about this.

Merchant account vs. integrated payment system

A merchant account is an account that allows businesses to accept credit or debit card payments. If you do decide to go the merchant account route over an online payment system, there are a few things you need to know.

Most merchant account providers will include basic services that are necessary for accepting and processing secure credit card payments online. To get started, you’ll need a merchant account provider to connect your guests’ accounts with the business account for your small hotel.

Options include:

  • Banks – You can get a merchant account through a bank, but they tend to charge higher fees for businesses with a high possibility for returns and refunds.
  • Credit card companies – Many small accommodation providers get merchant accounts through their credit card companies instead of their business bank. They’ll either set up merchant account processing, or ask you to use a third party processor (in the case of Visa and MasterCard). Some credit card processing companies require that you maintain an account in their bank before you can process cards.
  • Deferred payment processing – You can skip the merchant account and used a deferred payment processing system in conjunction with your point of sale (POS) system.

Plus, you need to find a merchant account provider that offers the following:

  • A PCI Compliance certification. PCI Compliance means that the merchant account has met a set of safety standards that are required for processing financial transactions online. A merchant account that is PCI compliant will have a secure server that allows you to process the payments.
  • An order form. The order form allows your guests to input their payment information. It should be as simple as possible, and hosted on a secure server.
  • An online payment gateway. The payment gateway processes the payment information and ensures that you receive the payment on your end.

Costs associated with merchant accounts

Regardless of which merchant account provider you select for your small hotel, you will have to pay several types of fees. These can include:

  • Application fee – Required when you apply, whether you get approved or not.
  • Transaction fees – Nearly every merchant account will require transaction fees for every transaction.
  • Monthly or yearly minimum fees – Some merchant account providers require you to process a certain amount of money each month. If you do not hit the minimum, you may have to pay it anyway.
  • Discount rate – This is the fee that merchant account providers pass on to you as a result of the fees they incur for processing credit card transactions. They’re usually between 2-3% of every sale.
  • Refunds – There is often a fee charged if a customer requires you to refund their payment that was processed online (it can be several dollars or more). These are usually charged per occurrence.

Your fees may be influenced by:

  • The age of your business
  • Your personal credit rating
  • The percentage of phone or internet sales
  • The type of business you’re in
  • The total amount of sales per month
  • The average dollar amount of each sales transaction
  • Services fees tacked on by third party providers

As you can see, setting up a merchant bank account is a time consuming and expensive process. A huge benefit of integrated payment solutions is that they help small businesses avoid the headaches of setting up and maintaining a merchant bank account. Instead, they offer hotels the ability to be set up and start accepting payments in mere minutes with much more transparent, transaction-based pricing. 

Online payment gateway vs. integrated payment system

Now we’ll look at the other online payment processing option that we touched on earlier: online payment gateways. 

You can implement an online payment gateway in order to accept credit card payments on your website – but like merchant accounts, it won’t come for free. There are three costs you need to consider when setting up an online payment gateway:

  1. Set up fees – Many online payment gateway providers require bed and breakfast owners to pay set-up fees. The set-up fee should not deter you from setting up a payment portal for your small hotel, as this fee is nominal and is charged by most gateway providers.
  2. Ongoing fees – It is common for these providers to also charge monthly fees for continued service. Ongoing fees are the largest fees associated with implementing an online payment gateway. Most providers offer several levels of service, allowing you to select an option that fits your business and your budget. You will pay more per month for value-added features, such as fraud detection or 24-hour customer support.
  3. Transaction fees – Transaction fees are the norm. Transaction fees may require you to pay a certain percentage to the payment portal for every transaction (about 2% to 5% per transaction) or they may require a flat fee per transaction. Verify that the payment portal accepts your currency and inquire about any fees for currency conversions. Refund fees also are required by some payment gateway providers, regardless of the reason for the refund. In the event of identity theft or fraud, they may insist on a higher refund fee. It’s important to get an outline for all fees prior to selecting an online payment gateway provider for your small hotel.

There are several premier online payment gateway providers available, such as Stripe, each with their own fee structure, so costs will vary. This is a worthwhile investment, but an integrated payments solution is a superior – and cheaper – option. 

This is because it allows for payment transactions from credit/debit card or other electronic payments (such as internet or mobile) to be processed directly within your PMS when a sale is made. It does away with the need to swipe cards or manually enter payment transaction details into a clunky terminal by allowing you to process payments with a click of the button, using the card details saved securely within the PMS. This saves valuable time, reduces labour costs, and eliminates the possibility of human error.

Online hotel credit card processing: What’s the best solution?

If your property is interested in an in-built online payment system, Little Hotelier is an all-in-one business solution designed specifically for B&B owners and small hotel operators. Our unique PMS includes an integrated payments solution called Little Hotelier Pay, that allows you to safely and securely accept online payments from your guests via your website and other booking portals.

With a system like Little Hotelier Pay, you will only be charged a small percentage of each transaction. No setup fees or ongoing monthly, refund, support, or cancellation fees are in place.

Investing in the right technology for your property can help improve the efficiency of your business operations. Little Hotelier allows you to simplify the payment process, making life much easier for you and your guests. 

To see Little Hotelier Pay in action, watch a demo video here.

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