Although we are not a cashless society, we are certainly moving in that direction. And in many respects, the resort timeshare industry is largely cashless. Annual dues and assessments are paid with credit cards, and both credit and debit cards are utilized when timeshare owners and their guests, as well as rental guests, are in residence at resorts.
Even before they arrive, consumers are using phone-enabled “apps” with credit card features to conduct a myriad of transactions.
With the alternative being either payment by check or cash, it’s impossible to imagine consumer-focused companies in the timeshare industry not having access to credit card processing capability. Without this capability, companies would be out of business overnight. And it has happened.
To say that the timeshare industry is misunderstood by the credit card processing industry would be a great understatement. Timeshare is widely regarded as “high risk” based largely on wrong information, or no information. Yet this categorization results in many consequences, among them higher costs of doing business and greater vulnerability to cancellation by processors.
When credit card processing companies and their sponsor banks speak of “risk”, it’s a relatively simple concept. It involves the delay in delivery of goods or services following a consumer giving permission, either in person (known as Card Present) or by mail or over the phone (known as Card Not Present), for a charge on their credit card. There could be two adverse occurrences that could financially damage the processor and the bank.
Sometimes, financial distress may lead to the merchant defaulting on its obligation to deliver the promised goods or services, and/ or the consumer is dissatisfied for what- ever reason, cancels the transaction and demands a refund (chargeback). In the view of the processor and the bank, the earnings are measured potentially in fractions of pennies per transaction, yet the financial exposure could be in the millions of dollars.
Some of the largest credit card processing companies haven’t even bothered to under- stand the timeshare industry, and so simply put it on their “prohibited industries” list. This means they will not accept applications from merchants conducting business in that industry. Others, while not publically proclaiming timeshare merchants as undesirable, they are simply not actively seeking them, which has the same net effect.
This isn’t a problem for the larger timeshare development companies still in active sales. Their access to credit card processing is assured by many factors—including affiliation with a parent hospitality company, decades of sustained business success, the sheer volume of transactions, and so forth. With respect to this subject, size does matter.
It is generally understood that if a merchant in any industry isn’t processing at least $10 million annually in credit card transactions, they are regarded as insignificant and thus have no negotiating leverage regarding their processing costs. At $20 million they get noticed, and at $30-$40 million, they’re approaching significance. What is the message in all the foregoing for service companies focused on consumers in the timeshare industry? Pay close attention to these expenses, and picture life without this capability.
And don’t be lulled into complacency. If a timeshare company has only one processing resource, and for some reason access to that resource is cancelled, the vulnerability of being in a sole-supplier environment will become painfully obvious. If possible, be proactive and divide credit card processing between at least two providers. That way, if one withdraws, a relationship with another already exists. This is critical because it is entirely possible it could take longer than the cancellation notice period for a company to find a new provider, thus the “out of business” scenario.
The time to be looking for additional processing relationships is when you don’t absolutely need them. It takes time, and they’re in no hurry to respond. It’s also important to know that they have access to incredibly sophisticated databases, and that will likely be their first stop after receiving your application. If a company has had any legal or regulatory issues, especially any involving consumer complaints, they will know about them in a matter of minutes. They will also visit your website, of course, so there must be consistency between its content and what is reflected on your application.
There are two practices that would not be encouraged: applying to a new processing company to receive a more favorable economic proposal with the sole intent to use it to negotiate lower rates with the current provider or secure approval from a new processor, and then not provide them with the card transaction business they are anticipating. In either case, you’re in the file of the ISO (independent sales organization) that was your conduit to the processor, as well as the processor. Likely, neither of them will be favorably disposed to go through the exercise again in the first instance, and you’re at risk of being arbitrarily cancelled in the second. In both instances, you didn’t operate in good faith, and there isn’t room in the credit card industry for such behavior by timeshare companies.
The foregoing may not be a pleasant picture, but it is an accurate and easily verifiable one. And it should be the focus of someone’s constant attention in every timeshare company that relies upon credit card transactions for a significant portion of its flow. And that would be just about everyone.