September 21, 2010
Reserve Bank of India (RBI) has issued a notification that states ‘Processing MOTO Transactions on POS Terminals is to stop, as of 1st January, 2011’. RBI has issued this notification in continuation of its movement towards tightening the controls on credit card operations, keeping the safety of the credit card holders in mind. You may recall, earlier this year, RBI had made the implementation of third factor authentication processes like Verified By Visa and MasterCard Secure Code mandatory. This notification is yet another step in this direction. While this may be beneficial to credit cardholders, it is expected to have an adverse effect on the hospitality industry.
A large section of the hotel industry currently operates on a `credit card guarantee’ method of confirming a reservation. In such cases, the hotel collects the guests’ credit card details in advance and confirms the reservation without actually collecting any advance payments or actually charging the card. In those cases where there is a `no show’ by the guest or where the hotel wants to charge cancellation fees, the hotel will then charge the guests’ credit card the requisite amount in his absence. Since the guest has already accepted the hotel’s rules in advance on `no-show’ and cancellation charges, usually the subsequent charge is not contested by the card holder. Now, with the implementation of this new notification from the RBI, hotels will not be able to charge the guest’s card in his absence for any charges. This will have a severe impact on hotels using the `credit card guarantee’ method of confirming reservations. Hotels will be forced to adapt their business module to weather this policy change.
One way for hotels to resolve this is to collect the reservation charges directly from the guest at the time when he is making a reservation –either in full or in part. In case of a cancellation, the reservation amount is refunded minus the cancellation fee and the transaction fee. For this a hotel will need a full fledged payment gateway linked to its online reservation system. Online hospitality providers like ResAvenue already have solutions in place that will enable hotels to collect the whole or partial reservation amount based on their business rules. ResAvenue hoteliers who use the complete solution will not be affected and will ride this storm quite easily.