While attending the ARDA World convention in April, a conversation with long-time acquaintance and friend, Larry Gildersleeve, RRP, was an eye-opener. We discussed the increase in reluctance of merchant card providers to handle timeshare resort accounts and the facts were alarming.
Larry and his partner, Jeff Sites (whom many will remember as a co-founder of Trendwest Resorts, Inc.), provide consulting services in the resort timeshare industry under the auspices of Gildersleeve Partners. Most recently Gildersleeve and Sites have been focusing on the proliferation of barriers to finding equitable and fair credit card solutions for anything with the ‘taint’ of the word, timeshare attached. We caught up with Gildersleeve recently to learn more:
Trades: As a starting point, can you tell us a bit about Gildersleeve Partners?
Gildersleeve: Certainly. The company was formed in 1995 and its focus is exclusively the resort timeshare industry, both in this country and abroad. We specialize in business development, consulting and real estate brokerage. And we are
about to expand our brokerage division to include financial services.
Trades: When we spoke with you informally at the recent ARDA convention, you mentioned a concern about credit card processing in our industry. Can you start by giving us some background?
Gildersleeve: Yes. A few years ago, I was asked to invest in a retail business. In doing due diligence, I realized how much of their cost of doing business was attributable to credit card processing fees. I connected the dots, and began looking at this issue within the timeshare industry.
Trades: What did you find?
Gildersleeve: Our research began by talking with senior executives at banks and card processing companies. Our original intent was to secure a business development engagement for our company. But there was a remarkable, at least to me, lack of interest. The universal view was that our industry was, in their words, high risk. When we asked for an explanation, literally every company gave us the example of the cruise ship industry immediately after September 11th. After that event, wholesale cruise cancellations by consumers resulted in that industry being classified as high risk and therefore undesirable as a credit card merchant customer.
Trades: How did you respond?
Gildersleeve: We tried as best we could to describe the variety of credit card transactions occurring in our industry, and why they did not fit, at least in our view, their concern about cancellation risk. We got the feeling they understood the differences, and were at least somewhat persuaded by our arguments. But none would commit to even a general re-evaluation of our industry.
Trades: So what does this mean for the timeshare industry?
Gildersleeve: Our study and research, which began in 2013, leads me to believe our industry has been unfairly categorized with a broad, and negative, brush regarding risk assessment. And I think it can be shown this potentially translates into a substantially higher cost of doing business.
Trades: Can you elaborate on how this affects profitability of timeshare companies?
Gildersleeve: If our assessment is correct, and we believe it is, then affected companies will see profit erosion from paying higher discount rates and associated fees. These are the costs directly associated with processing credit card transactions.
Trades: Is there anything else that might be unfair to timeshare companies in this area?
Gildersleeve: Potentially, yes. As a hedge against reversed transactions and possible future losses, credit card companies often require merchant clients to set up reserve accounts. The amount of money held in reserve can run into the millions of dollars, and represents cash a timeshare company cannot use for other purposes.
Trades: Coming back to the “risk” issue, why do you think timeshare companies are being singled out?
Gildersleeve: First, they’re not being singled out as it were. They are being lumped in with other more likely high risk enterprises, such as multi-level pyramid marketing schemes and companies offering pseudo-pharmaceuticals. There is also the possibility one or more lending institutions have actually experienced losses in our industry, and thus have an unfavorable impression. And I don’t think we can totally discount the decades-old public perception issue.
Trades: What can timeshare companies do?
Gildersleeve: Many things. First, understand there aren’t a lot of providers of credit card processing services generally, and even fewer with an interest in our industry. So be careful about being overly bold in challenging a current provider. If a timeshare company currently has a reserve requirement, but a clean history of card processing and a strong balance sheet, it might be worth a discussion about reducing or eliminating the reserve to free up the cash for other uses.
Trades: What about the transaction fees you spoke about?
Gildersleeve: I suggest a company invest the time to understand their cost structure in this area. Are they being charged a flat discount fee, or does it vary depending upon the type of consumer purchase or the type of card being used? By that I mean is it a debit card or credit card. In addition to the transaction fees, do their monthly statements indicate other fees and charges? The best analogy here would be a mobile phone or cable TV bill.
Trades: Are there any other areas of concern we should know about?
Gildersleeve: Perhaps. What we’ve been talking about so far are the risk concerns of the credit card processing companies. I understand it’s also possible for timeshare companies to have legal or financial exposure for data breaches at the companies they utilize. It’s something they can’t control, but for lack of a better expression, they are in the chain of custody of confidential consumer information. This would be information gathered in connection with a credit card transaction.
Trades: This is the first time we’ve had these issues raised in this manner. Do you think there is general industry awareness or concern?
Gildersleeve: No way of knowing for certain, but my sense is “no”. It might be worth asking ARDA.