The high surcharges levied on most credit and debit card transactions when booking flights are well documented.

Less well known are the problems many companies face when making large numbers of orders: difficulties in reconciling orders with individual transactions; accidental triggering of merchant anti-fraud mechanisms; and poor controls to prevent and detect misuse of company accounts by employees.

All of these issues can be overcome, however, by choosing to pay for travel products with single-use virtual prepaid cards.

High surcharges

The cost to consumers of ‘rip-off’ fees when purchasing flights and hotel rooms has been well publicised in the national and consumer press. These surcharges also affect companies when making mass travel arrangements for employees as well as third parties such as bookers and travel agents.

For companies whose business is based on booking travel products, a £5 or £6 surcharge per transaction can be a massive blow to their profitability.

In December 2010 the Office of Fair Trading claimed that transport companies, and in particular airlines, had imposed surcharges during the previous year that totalled £300 million.

A large percentage of this will have been absorbed by travel agents and bookers. In a hostile economic climate and highly competitive market, agents and bookers are operating on increasingly tight margins.

Drip pricing

The OFT earlier this year announced that excessive surcharges were a problem that needed to be tackled. It recommended that the government legislate so that travel companies made surcharges clearer (a move to counter ‘drip-pricing’) and scrap debit card fees altogether.

The government has yet to make a response. The abolition of debit card fees would be troubling for low-cost airlines like easyJet and Ryanair because at the moment they enjoy huge economic benefits from being able to advertise low cost fares but without many consumers being able to take them up.

This is because these companies can only advertise their ‘low-cost’ fares if they offer one form of payment that does not incur extra fees.

The implementation of the OFT’s recommendations would be welcome news to consumers but would be of little help to most travel bookers, agents and businesses which tend to pay with credit cards.

Reconciliation, anti-fraud mechanisms and internal controls

The increasing popularity of tailormade holidays has led to travel companies needing to increasingly make bookings on cards, rather than through traditional distribution systems, such as Amadeus and Sabre.

This leads to a range of difficulties, starting with the reconciliation challenges of matching large numbers of orders with their corresponding transactions.

A high volume of transactions processed using a single card can also lead to problems through triggering anti-fraud mechanisms. Card issuers often block cards that have been used repeatedly in quick succession.

Finally, debit and credit cards can expose the need for more stringent internal controls within a company. Unauthorised transactions on a heavily used company card can easily slip through the net due to the difficulty with matching card transactions to orders processed.

The virtual prepaid card solution

All of the above problems can be overcome by using single-use virtual prepaid card to book travel.

A virtual card carries all the same data as a traditional plastic card: it carries a 16-digit card number, expiry data and a 3-digit security number. The difference is that a virtual card is delivered electronically onto a computer screen at the point-of-sale.

Unlike plastic cards, a new virtual card is created for each transaction, each card with its own unique data.

As a new card (and hence card number) is created for each transaction, companies will have no problems in reconciling orders with their corresponding transaction.

There is also little danger of setting off anti-fraud mechanisms because the cards are prepaid and can only be used once.

Because the cards are prepaid and single use, it is far more secure than entrusting an employee with an unlimited use credit card with a high limit.

And finally, as pre-paid cards often fall under into the category that avoids surcharges (typically Visa Electron or MasterCard Prepaid), travel businesses and agents have an effective, money-saving option.

The prepaid card industry is on the up. In 2010 prepaid cards were used for $65bn worth of transactions, up from $48bn in 2009, according to the Nilson Report.

Virtual prepaid cards are the solution to many of the payments problems in the travel industry.

Opinion piece by Alex Mifsud, chief executive of Ixaris.