In the travel sector, payment processing is a critical component of business operations. The agreements governing these processes, typically known as Merchant Services Agreements (MSAs), define the relationship between travel companies (merchants) and their payment acquirers – financial institutions responsible for processing card payments. During the onset of the COVID-19 pandemic, disputes around these contracts grew, highlighting the complexities and risks involved. This article unpacks key clauses in payment contracts, the roles of the various parties involved and practical advice on negotiating terms that better protect travel businesses.
The growing importance of payment contracts in travel
The pandemic triggered unprecedented disruptions for travel companies. Refunds and cancellations put immense pressure on payment systems. At the same time, acquirers experienced an almost overwhelming number of chargebacks and disputes, with some exiting the travel market and others adjusting their terms if onboarding new travel clients. This dynamic environment has brought payment contracts into sharper focus, revealing common pitfalls and negotiation opportunities.
The four-party card scheme model
At the heart of card payments is a four-party system involving:
- The customer / cardholder: the individual using a debit or credit card to pay.
- The card issuer: usually a bank or financial institution that issues the card to the customer.
- The merchant (travel company): the business accepting card payments for services.
- The acquirer: the financial institution that processes card payments on behalf of the merchant.
In this setup, card issuers and acquirers operate under strict agreements with card schemes like Visa and Mastercard. These schemes impose specific rules, responsibilities and liability structures, which acquirers must enforce upon their merchant clients.
Additionally, gateway service providers often play a key role by securely transmitting cardholder data from the merchant to the acquirer, sometimes offering value-added services such as hosted payment pages, pay-by-link solutions or telephone payment processing.
Merchant Services Agreements (MSAs)
MSAs formalise the merchant-acquirer relationship. However, travel companies frequently find these contracts to be lengthy, heavily one-sided, and filled with legal jargon (often written in a style favouring the acquirer). This imbalance exists because acquirers themselves face tight legal and operational constraints under their own card scheme contracts, limiting their flexibility and causing them to pass risks and restrictions downstream.
Key issues in payment contracts for travel companies
1. Lack of clear definition of services
One common problem is the absence of detailed descriptions of the services the acquirer promises to provide. Unlike typical commercial contracts that clearly outline the scope of work, many MSAs are vague or general when defining the acquiring services, authorisation and capture processes, or ancillary products (such as portals for transaction data review).
This lack of clarity poses a risk: if the service quality is poor or the agreed functionalities are missing, travel companies may find themselves without strong contractual recourse. To mitigate this, merchants should seek as much specificity as possible about the services, either within the MSA or as a referenced schedule or addendum. Clarity on roles and responsibilities, (especially whether the counterparty is the actual acquirer or an intermediary), is also crucial to ensure enforceable rights.
2. Absence of service level guarantees
Most MSAs disclaim warranties or promises regarding service quality. Given the importance of reliable payment processing for travel companies, (often dealing with high volumes and time-sensitive transactions), this is a significant risk. Travel merchants should try to negotiate at least a warranty that the service will be performed with reasonable skill and care or according to industry standards.
Larger merchants with commercial leverage might push for explicit service levels and service credits, which provide refunds or fee reductions if the acquirer fails to meet agreed benchmarks. Even if full service level agreements (SLAs) are not achievable, striving for minimum quality guarantees is advisable.
3. Broad indemnity clauses
A core risk area for travel companies relates to chargebacks – situations where a customer disputes a transaction, typically requesting their card issuer to reverse a payment. Card schemes set out detailed rules governing chargebacks, including timelines, documentation and dispute procedures. Acquirers are ultimately liable to pay chargebacks, even if they cannot recover funds from the merchant (e.g. if the merchant becomes insolvent).
MSAs commonly impose broad indemnities on travel companies to cover all chargebacks and card scheme fines. While it’s reasonable for travel companies to indemnify acquirers for legitimate chargebacks, such as non-refunded cancelled holidays, many indemnity clauses are overly expansive. They may not allow the merchant to contest dubious chargebacks or shield them from fines that are not their fault (e.g. when the acquirer itself breaches scheme rules).
Negotiation points here include securing the right to force the acquirer to dispute chargebacks when valid defences exist and obtaining transparency on chargeback handling and dispute outcomes. For fines, merchants should aim to limit indemnities to situations where they are clearly responsible.
4. Security and reserve requirements
Because acquirers remain liable to card schemes for all chargebacks, even if the travel company fails financially, MSAs often give acquirers the right to demand security (cash deposits, bonds or guarantees) from merchants. Acquirers may also unilaterally defer payouts to merchants, holding reserves from transaction proceeds as protection against future chargebacks.
These provisions can seriously impact cash flow, a critical factor for travel companies operating with tight margins. Often, these rights are at the acquirer’s full discretion, without clear triggers or limits, leading to sudden and unpredictable demands for increased security or longer payout delays.
Best practice for travel companies is to negotiate:
- clear, objective triggers for security or reserve requirements (e.g. a measurable increase in chargebacks or deterioration in financial health);
- constraints on acquirer discretion, requiring actions to be reasonable and made in good faith; and
- defined timelines and limits to payout deferrals.
5. Overlap with regulatory and industry protections
Travel companies should be aware that acquirers’ claims on security do not operate in a vacuum. For example, where payments relate to Air Travel Organiser’s Licenses (ATOL) protected bookings, the Civil Aviation Authority (CAA) and its Air Travel Trust Fund may cover some liabilities. Some acquirers have agreements with the CAA to apportion liability accordingly.
Knowing these arrangements can be a useful negotiation tool, preventing merchants from being double-secured and helping to balance risk allocation more fairly.
Key takeaway
MSAs are rarely balanced, but for travel companies they are too important to leave unexamined. These contracts dictate how money flows into the business, how disputes are handled and how much cash may be tied up in reserves. The pandemic exposed just how far-reaching their effects can be, as acquirers tightened terms and merchants faced unexpected security demands or withheld settlements.
The key message is that travel companies should approach MSAs as they would any other critical commercial agreement. Clarity on what services are provided, some assurance of service quality, fair limits on indemnities, and proportionate rules on reserves and security can all be negotiated. Existing protections, such as ATOL, should be used to resist duplicative demands. Even if an acquirer holds most of the cards, careful negotiation can reduce unnecessary risks and stabilise cash flow.
Ultimately, MSAs set the terms of the partnership between merchant and acquirer. Those operators who treat them as a strategic priority, rather than routine paperwork, will be better placed to manage disputes, protect liquidity and build resilient payment arrangements for the future.
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