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Interchange, Part 3: 11 Ways to Lower & Offset the Costs of Accepting Guest Payments

Payment ProcessingInterchange

From coast to coast, the many different ways guest payments are collected have a significant impact on a vacation rental property manager’s Profit & Loss statement. Depending on how the business is run, the credit card expense line item often weighs in as the third most costly expense after wages and taxes.

While much effort is spent on reducing or eliminating less impactful expenses, the costs associated with collecting guest payments are sometimes written off by property managers as the cost of doing business.

But there are many ways to reduce that impact – or even eliminate it altogether.

1. A common solution in the short-term rental space is to implement or increase your existing BOOKING FEE to cover the cost of accepting guest payments. This type of fee can be any amount you are comfortable with and can be either a flat fee or a percentage of the booking as long as it is charged on all reservations regardless of payment type.  Sometimes also referred to as a reservation fee or a service fee, this add-on can generally be called anything you like with one exception:  any name that could be confused with a “surcharge” should be avoided unless you want to implement additional rules from the card brands surrounding the surcharging of credit card payments.  We’d recommend staying away from calling it a “processing fee” for the same reason.

2. Pass the cost of card acceptance through to THE HOMEOWNER. As the competition for management of vacation rental homes continues to increase, you may find this option counter-productive to implement in your market. However, the card brand regulations do not generally apply to this type of fee, so you have wide latitude in how you wish to apply it. To calculate the average credit card cost, take your total credit card fees, and divide by your total credit card sales volume.

3. Charging the guest a SURCHARGE is another option. This one is an official fee, sanctioned by the card brands, automatically calculated, and added to the total any time your guest pays by credit card. There are specific rules at the state, federal, and card brand levels, and the fee is limited to the average of your actual costs of payment acceptance, not to exceed 5% if you take Amex. You’ll need a knowledgeable payment partner and a compliant program like the AscentZeroCost Surcharge Program to help you implement this, but it’s easier than it sounds. 

4. You could always build the credit card acceptance fees into the total due up front, and then offer a CASH DISCOUNT for guests who choose to pay by check. The regulations surrounding this option are tricky and sometimes misconstrued, however, and breaking them can carry unreasonably severe consequences. Reach out for guidance from a trusted payment partner if you decide this is the route for you.

But not all vacation rental markets in the U.S. will tolerate the increase in rates or addition of fees, especially if your competition doesn’t charge them.  Even worse than losing 2 or 3% of each reservation in fees is losing 100% of the booking due to a fraud chargeback or because your competition’s fees are lower! There are several secure ways to accept alternative payments outside of the credit card platforms that not only result in significant fee savings, they also prohibit guests from charging back valid bookings:

5. Providing the guest a BOOK NOW PAY LATER option by your reservationist or on your website allows you to accept FULL payment at the time of booking, locking the reservation in early. And while normal credit card processing fees do apply, there is NO risk of receiving an unwanted chargeback down the road. This flexible payment option is available for luxury travel, budget travel, and vacation rentals here:  AscentPay 

6. An even more cutting-edge payment method is to accept CRYPTOCURRENCY for bookings.  The crypto space can be a bit intimidating – and for good reason – so partnering with a trusted payment partner that can provide support and security is vital. Depending on your processor, this payment method gets you paid in U.S. dollars which protects you from volatility, prohibits chargebacks, and costs only 1% to process the payment. One option, already integrated with a trusted vacation rental payment gateway, can be found here: Ascent Cryptocurrency Program .

Despite their love of technology, vacation rental managers can be surprisingly traditional when it comes to accepting guest payments for rentals. If you’d prefer to stick to conventional payment methods but want to pay lower fees AND greatly reduce the possibility of receiving a chargeback, these methods are for you:

7. Accepting ACH (Automated Clearing House) for rental bookings is easy. ACH is a way to move money directly from one bank account to another. The cost depends on the processor but in many cases consists of a low monthly fee and a flat fee per transaction. When compared to a percentage rate for accepting credit and debit cards, a flat fee can be quite a significant savings.

8. Adding a GUEST VERIFICATION tool to your booking site that uses EMV 3DS technology eliminates your liability for fraud chargebacks.  Let the issuing bank take on all the risk of fraud while you enjoy the added benefit of knowing your guest is exactly who they say they are. Preventing fraud losses can save you much more than the cost of accepting credit cards for payment. IDVerify is a great option.

9. Make it clear to your guests that you PREFER DEBIT CARDS over credit cards. When your reservationists and your booking site suggest debit cards, many guests will comply. This option not only reduces your chance of a chargeback, it can also save you up to 3% or more on your payment processing fees due to the lower interchange rates the card brand charge on debit cards.

And finally, the two EASIEST ways of saving on payment fees don’t involve ANY work on your part:

10. Require your payment processor to bill you using the INTERCHANGE PASS-THROUGH METHOD, which forces them to pass savings to you on less expensive card types like debit (instead of keeping it for themselves). Ensure they add a small mark-up only to the rate charged on your processing volume, not also to the card brand fees or other fees. Ask for net billing so that you receive at least some of the interchange fees back when you process refunds, instead of your processor keeping those savings.

11. Have a trusted payment partner – one with specific knowledge of the vacation rental space - conduct a full INTERCHANGE ANALYSIS for you. There are over 2,000 different interchange categories, ranging from 0.05% to well over 3%. Interchange is complicated and the rate depends on a lot of factors – what type of card is used, how it is used, how your software registers it, how your gateway processes it, how your processing bank handles it, how the card brand views it, and much more.  A full analysis will help identify settings that need corrected and additional data that needs transmitted, along with other tweaks in your systems to help you achieve the lowest rates possible.



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