The importance of taking credit card payments for holiday rentals

It is becoming increasingly necessary for holiday home owners to accept credit and debit card payments. Cheques are dated and are used less and less. They are inconvenient to post and pay in, and it takes time to wait for them to clear. Guests are becoming more wary of bank transfers as stories of fraudulent holiday home owners have hit the press. Paying by credit or debit card is quick, simple and secure. Not only will you look more professional, you are also likely to significantly boost your bookings.

If you don’t accept credit and debit card payments you probably already know that you should. It’s a bit like going to the dentist. You know you need to do it, but everything is working ‘just fine’ at the moment so we’ll leave it for now. Perhaps you are thinking it is something to tackle during those slow winter months. Perhaps you like the idea of it but it all just sounds a bit too complicated. Or too expensive. Or something that can wait until that booking calendar is looking depressingly empty.

This article aims to remind you why you really need to bring ‘accept card payments’ to the top of your ‘to do’ list. In today’s competitive market you can’t afford to not accept card payments. It’s time to bite the bullet and take the plunge.    

Security

Compared to bank transfers or cheques, credit card payments are one of the safest methods to pay for a holiday. In recent years there has been a rise in the number of guests who have been seduced by the ‘too cheap to be true’ properties where bogus holiday home owners have tricked guests into transferring money for holidays that don’t exist. Obviously anyone transferring money online can be caught out by a scam, not just those in the holiday letting industry. With more guests becoming aware of such scams they are also becoming more security conscious about the way they pay for their holidays.

As most people are aware, if you buy goods or services between the value of £100 and £30,000 on your credit card, you automatically get credit card purchase protection under Section 75 of the Consumer Credit Act 1974. This means that both the supplier and the credit card company are jointly liable if things go wrong. If the retailer or trader goes bust, or if they do not supply the goods or services you have paid for, then you can claim a refund from your credit card company. Understandably, this credit card protection instils confidence in guests.

It is worth noting that there has recently been some debate as to whether Section 75 protects payments made online via certain third party payment mechanisms, such as Stripe, Sage Pay and Square etc. For Section 75 to apply there needs to be a direct relationship between the customer and the trader. In theory, by using a third party to process the payment, that relationship is broken and the protection is lost.

Some credit card companies still honour their Section 75 commitments even when the payment was made through a third party. But others don’t. In 2016 the Financial Ombudsman Service (FOS) asked the Law Commission to reform Section 75 to include third party payments, but at the time of writing this does not seem to have happened. The FOS seems unable to provide clear guidance on whether you have payment protection when using third party payment companies or not. It is also unable to confirm which type of payment does, or does not provide protection. In the meantime, the consumer (in this case the holiday maker) is at the hands of their credit card issuer as to whether their online purchases are protected by Section 75.

Don’t let this ambiguous loophole put you off accepting credit card payments. Whilst it is worth being aware of it, as a holiday home owner it does not directly concern us, and it is unlikely that many of our potential guests even know that this loophole exists. Paying by credit card is still much more transparent and much less anonymous compared to a bank transfer.

Convenience

It is much more convenient for holidaymakers to pay by credit card. Making bank transfers and writing cheques takes more time and effort. Whilst bank transfers within the UK are free they can take between 3 and 5 days to clear. In addition, given the rise in recent scams guests are now advised to ring holiday home owners to confirm that their bank details are correct before making a payment.

If you have international guests, the inconvenience of physically going to your bank to make an international bank transfer is even greater and more expensive. In comparison, credit or debit card payments are quick, easy and cheaper. A simple click on a button allows guests to type in their card details and pay without leaving the house or wondering if the money is going to the right account.

The original purpose of the credit card was to manage household cash flow. With the recent rise of last minute bookings, more holidaymakers are paying for the full amount of their holiday at the time of booking. Paying by credit card allows them to defer payment until the following month, or until after they have been paid.

As a holiday home owner, accepting card payments will definitely give you a competitive advantage. Consumers are used to shopping online. If they are choosing between two properties and one requires you to contact the owners to request details to pay by bank transfer or cheque and the other has the facility to pay instantly online, the vast majority of guests are going to choose the latter. It is also easier to issue a refund if the guest decides to cancel, or to return guests deposit via a card payment.

It is worth noting that by accepting credit card payments you do not necessarily need to accept instant bookings. Whilst having this function means you are more likely to catch guests whilst they are in the holiday booking mood, and it makes it easier for people in different time zones to make a booking, you can still opt to accept or decline requests before processing the payment if you wish. It is possible to just add card payments as an additional payment method to your existing booking process.

Considerations

New laws came into effect in January 2018 which means you cannot penalise anyone choosing to pay by credit or debit card. You therefore need to build any credit or debit card charges into your prices rather than passing fees directly onto a customer. The same applies if guests are paying via PayPal.

As credit cards can be processed from as little as 1.4% they are still considerably cheaper than OTAs (Online Travel Agencies), who tend to charge a minimum of 3% for processing payments, or PayPal who charges between 4% and 5%. This allows holidaymakers to save money and owners to price their holiday cottages more competitively. 

Review of Stripe and Square

There are many third party payment options on the market. Two of the more competitive popular platforms used by holiday home owners are Stripe and Square.

Both Stripe and Square are designed to integrate with websites and apps. It is relatively straight forward to add the payment facility to a website. It is also possible to use Stripe and Square to create ‘manual’ invoices and email-based payment requests. They work by sending a link via email to the holidaymaker allowing them to make a payment via their credit or debit card. Once the payment is made, the fees are deducted and the balance is paid directly into your bank account. Various tools and functions are provided allowing for invoices to be sent and payments chased.

Features and ease of use

Stripe is a heavy-weight multi-channel payment gateway. It is aimed at tech start-ups and global firms looking to build integrated payment solutions into their websites, apps, retailer tills and call centres. It has lots of features, including recurring payments and payment mechanisms such as GooglePay and ApplePay. If this already sounds like a technical overload, don’t panic! Whilst much of Stripe’s initial messaging is aimed at technical companies, it is perfectly possible to skip all the technical integrations and services and create a simple stripe account which will take one-off credit and debit card payments from holidaymakers.

Square is slightly less complex than Stripe. You can create an invoice which asks for a deposit to be paid immediately, with the outstanding balance due at a later date. Square encourages its users to use “Square Invoices” which is a downloadable app aimed at tradesmen and other small businesses wanting to generate quotes and send invoices from their mobile phone on the go. This app isn’t really that useful for holiday cottage owners, as you can easily create manual invoices in Square without using the app. The “Square Invoices” app also carries a higher service charge of 2.9%, so is best avoided.

If you want to take onsite payments, you can purchase a card reader from Square for £19. It works with chip and pin, contactless or with a phone app. Stripe does not currently have card readers available in the UK.

Fees

Probably the first thing you want to know is how much is it going to cost. Both Stripe and Square charge a flat rate per transaction with no monthly fees. Stripe charge 1.4%, plus 20p for every transaction within the EU. Non EU transactions are charged at 2.9%, plus 20p. Square charge 1.9% for European cards and 2.9% for non European cards. If you have purchased a card reader to take onsite chip and pin payments they charge 1.75%.  Here are some examples of what you can expect to pay depending on how much the booking costs and what country the guest is paying from. These are based on online payments, not chip and pin.

Provider	Fees	Example	Net Amount Received
Stripe	EU card 1.4% + 20p	£500 Booking Fee = £7.20	£492.80
Stripe	Non-EU card 2.9% + 20p	£500 Booking Fee = £14.70	£485.30
Square	EU card 1.9%	£500 Booking Fee = £9.50	£490.50
Square	Non-EU card 2.9%	£500 Booking Fee = £14.50	£485.50

To further help you compare the true costs of Stripe vs Square for different transaction types (i.e. UK and international), we have created two scenarios below using the same illustrative booking profile.

Scenario 1 showing Stripe fees

Customer	Booking Total	Stripe Fees	Net Amount Received
British Customer	£500	£7.20	£492.80
American Customer	£500	£14.70	£485.30
Dutch Customer	£295	£4.33	£290.67
British Customer	£295	£4.33	£290.67
Total	£1,590	£30.56	£1,559.44

Scenario 2 showing Square fees

Customer	Booking Total	Square Fees	Net Amount Received
British Customer	£500	£9.50	£490.50
American Customer	£500	£14.50	£485.50
Dutch Customer	£295	£5.60	£289.40
British Customer	£295	£5.60	£289.40
Total	£1,590	£32.20	£1,557.80

If your customer base is mainly from the UK and EU Stripe is the more competitive payment platform. However, if you have a lot of guests from outside the EU then you might find that Square isn’t far behind. It may be worth considering using both so you can cherry pick for the most cost effective solution.

Access to funds

Stripe pays out on a rolling 7 day basis. This means that the earliest that you will receive your money is 7 days after the holiday maker has made a payment. Square pays out the next working day. It is worth noting that if a guest pays for a last minute holiday on Friday at 4pm, you will not receive the money until Monday at 4pm. They do also offer an “immediate” pay out facility for an additional 1%.

Online booking management systems

You might already use an online booking management system to help you manage the booking process of your holiday home or homes. Some booking systems have payment gateways built into them. Other’s use third party payment platforms. If you already use an online booking management system it makes sense to use a compatible payment platform to accept credit and debit card payments. Stripe is one of the most accepted payment platforms amongst the most popular booking systems.  

In summary

In today’s competitive climate you should question whether you can you afford to not take credit card payments. Stripe and Square are just two of many payment platforms. Opayo, Worldpay, HolidayrentalPayment, Transfer Wise and Wave are just a few others you might think about. You will need to consider how quickly you want the money in your account, how much you will be charged per transaction, and whether guests have to set up an account to make a payment before you decide which platform is best suited to you.

The holiday rental market is forever changing. What worked ten years ago is not necessary going to cut the mustard today. Make sure you don’t get left behind. Put a big red circle around ‘card payment mechanisms’ on that to do list. It might not be as exciting as choosing new colour schemes but it will make your booking process easier for your guests which in turn will bring in more bookings!