Mews Systems | The Hidden Rising Costs of OTA’s

Hotels are paying the price for inadequate security, and largely further enriching the OTAs in the process. We would like to expose one of their latest endeavors which has raised commission costs by 2% for hotels accepting Virtual Credit Cards.

Hotels function with very clearly separated departments. The Sales department who signs sales contacts and agrees to the OTA commissions. Secondly you have the accounting department who are the ones who receive (and pay for) that hefty Booking.com bill that comes every month without fail. Often there is a disconnect between these 2 departments, and this is causing a lack of understanding why credit card commissions are rising faster than ever. We would like to explain why some OTA’s have suddenly started using Virtual Credit Cards, and how this is eating into the hotel’s profit margins even further.

What do we know?

We began our journey of creating a 21st Century Property Management Solution with the idea that we were creating our system for a world which does not distinguish between an offline world, and an online one. At the heart of a PMS is the ability to take payments, which in hotels are mostly by credit cards. In 95% of hotels today, payments are still taken manually on the traditional credit card terminals, making the process slow and definitely not risk free.

As we started thinking out our future-proof solution, I remember us sitting with the regional director of one of the largest payment facilitators in the world and reaching an impasse as they couldn’t understand that we wanted our online payment gateway to be the same as our offline gateway (they had just bought an online gateway, but couldn’t understand why we would ever want to merge the two worlds). More shockingly, they couldn’t understand why we wanted assurances that there would be no price differences (surely the online world is more risky, right???). We left the meeting thoroughly depressed as we couldn’t quite understand why anyone would still want to offer anything other than an omnichannel solution in 2013.

Fast forward to now, we have found perfect partners for our payment vision, but we still find the thinking still permeates the industry. In the PMS world, we find it shocking that there are still PMSs that come without an online payment gateway integration, considering how most of the business in the hospitality industry solidly comes from online channels. But because of this, hotels are still footing the bill as they are then forced to accept halfway measures which come with a lot of hype and not much by way of added security: the Virtual Card.

What makes the Virtual Credit Card so great?

Hoteliers who work with Booking.com have always had challenges with bookings that came with credit cards and the card simply is not chargeable. So if a guest does not show up, you have lost this revenue, and you cannot claim it from the OTA, as it was the responsibility of the hotel to check the card prior to arrival and report it. Logic or not, this is the reality, and Booking.com will still charge you commission on bookings if you forget to tell them about the dysfunctional card.

This problem was solved by Expedia long ago, because they take payment from guests directly… hold on to the money (sometimes for several months), and at the time of check-out they pay the hotel. This ensures hotels get paid, but it ruins the hotel cashflow.

Booking.com has now introduced the Virtual Credit Card, a sure way for a hotel to get its money, and no longer have to deal with unpaid no-show bookings. A foolproof solution, and hotels are jumping on the bandwagon as they no longer have to worry as they are guaranteed to get payment.

Where are the hidden costs?

Having studied the phenomenon close at hand, we can see that the virtual card offering by the OTAs especially is really nothing but a commission by another name, and a further means through which the OTAs claim an extra stranglehold over the customer.

Virtual Card = Corporate Credit Card

Last year the EU has started to regulate the payment card industry quite substantially, and fees on regular Visa & MasterCard are now capped. Sounds great, right? Well... the reaction of the payment providers has been to increase interchange fees for transactions on all cards not covered by EU regulation (such as corporate credit cards and non-EU cards), and these have an impact on the effective fee you pay per transaction:

For example if you have a hotel in Europe, and a customer from the EU books on your favourite OTA with his debit card, and the total reservation cost comes to €1.000

   With usual interchange (the guests personal card), you may pay an interchange fee of 0.2% for the transaction (interchange + bank fee) = €2

   However through the use of the virtual card, you actually end up paying up to 4% (!) = €40 - as the Virtual Card (considered a corporate card) usually carries with it an interchange cost of (usually) 2% - €20 (In fact, we've seen some card fees for these customers being even higher in total - and can reach up to 8%!)

Who pays for this? The Hotel, and of course, because this is a Virtual Card provided by the OTA, consider this as if you are paying another 2% commission to the OTAs. 

Your Hotel’s Cashflow

Usually the Virtual Card becomes active only on the day of arrival. So these OTAs now hold all of your money from the time of booking (on all non-refundable rates) until the date of arrival. They are holding your cashflow captive. Considering these are non-refundable bookings, you have the right to this money and there is no interest being paid to you for the holding of this deposit.

Short lifetime of a Virtual Card

For repeat customers, there is nothing easier than re-using the same card at check-out to speed up the process (think how easy it is to get out of an Uber without needing to rummage through your wallet). However, with the virtual card, you have no control over the actual card of the customer, as it is not stored within your own gateway and has a short lifetime for use. There are added reasons for why it’s good to drive your customers to an online portal, whether on your property’s app or online check in area where they have their payment credentials stored (this will be the basis of a forthcoming post, but check out the data emanating from this use in the Restaurant POS space - https://pos.toasttab.com/blog/online-food-ordering-system).

Ownership of data

As we’ve seen with email addresses, OTAs are using security as a reason for why they do not release card information to you, under the guise of protecting the customer. The truth is that no-one is completely free from scandal, whether it is the OTAs (https://bobsullivan.net/cybercrime/expedia-warns-users-about-unauthorized-access-of-name-phone-email-and-booking-info/) or even large chains (http://www.securityweek.com/starwood-hotels-says-payment-systems-were-hacked), but that should not put you off implementing your own security measures and demanding that your technology supplier provides this as part of their offering.

At the end of the day, hotels need to remember that the relationship is between them and the customer, and not outsource all of their responsibilities to their OTA partner.

So what should you do?

So while the Virtual Card may be a good solution to a problem that was caused by the OTA in the first place, we feel the additional cost is something to take into account. Are you happy to pay an additional 2% commission, in order to be ensured payment by an OTA on bookings, for which you already pay anywhere between 15 - 25%?

Make a calculation:

1.     What is the cost of unpaid no-shows yearly to the hotel from this specific channel, usually a relatively small amount.

2.     What is the cost of your credit card fees if you count 2% over the total revenue from that OTA

Get your accounting and sales teams in one room, and discuss both upsides and downsides, and make an informed decision. You can always ask your OTA to stop the Virtual Cards (several of our hotels have already done this, and effectively so).

Richard Valtr & Matthijs Welle - Mews Systems

Mews Systems | Defying the Odds – The insanity of building your own PMS

Richard and I met each other 6 years ago at a Czech Fashion Show, where they were presenting last season’s collection to a crowd of hipsters, bloggers and 2 misplaced hoteliers. Richard told me about his vision for a hotel he was building in the heart of Prague, and how technology was going to be a big factor in making it the most forward thinking hotel in the city. 

As time went by, the hotel construction progressed, and certain decisions were made to facilitate the vision of making the hotel more like a home than a hotel, and purposely it was built without a reception area to create a true feeling of home. Guests would be welcomed at the door by hosts carrying iPads, who would check-in guests from the comfort of the living room. Guests could communicate and order services through customized apps, and have curated city guides to experience the city like a local. 

As the hotel came closer to its opening day, it was time to start finding the system that could cater to this customized and mobile experience. A long search ensued, with the resulting frustration and realization that no system on the market in 2012 could facilitate a true mobile experience, with integrated concierge applications, tokenized payments and automatic reservation management. 

Sometimes, if you want something done right, you’ve got to do it yourself

At this point Richard convinced the hotel owner to give him the budget which would have been spent on Oracle or any other “industry leading” supplier and he would build his own guest solution. He hired a graphic designer and brought in 2 developers and started building plans to rethink guest technology.

I joined the project a few months in, having left my career at Hilton, excited by the prospect of bringing some real change to the hospitality industry. After our initial discussions it became clear that in order to rebuild hotel technology, you cannot simply build guest apps, and then integrate them into the existing infrastructure, as we learned that the “Oracles of the world” did not have great open API’s and wanted top dollar to allow us to integrate into them. The only solution remaining was to start at the basics… so we built our own cloud based Property Management System.

At least if we owned the system in the backend, we could build it with a great open infrastructure for others to connect to and at the same time learn everything about our guests, as we would be the backbone system that stores and secures all guest data. We know who our guests are, where they book from, how much they spend, where they live, why they are travelling, their e-mail address, etc. This data would allow us to cater to those guests with specific solutions.

The Real Test

The Emblem opened in September 2013, with a system that had one fifth of the functionality it should have had, it was constantly crashing and their accountants had put our heads on dart boards as none of the reports were matching up, it did not handle the multi-currency environment, could not calculate VAT over the deposits correctly, etc. 

But we learned quickly, and deployed a new version almost daily with new features, fixes and new integrations. Within two months of opening we connected a channel manager with 2-way connectivity, built a connection to a payment gateway that stored credit cards, integrated into the facility management system (ensuring the rooms were at the perfect temperature as guests arrived to their rooms) and connected the restaurant system. 

Can we sell this thing?

Once we were confident that the system was working properly, we had to go find our first clients, so we started walking-the-talk and learned quickly that hoteliers always wanted to know which other hoteliers had taken the plunge before them… which was hard, because no-one except for the Emblem had. So we received endless: “thanks, but come back when you have at least 20 hotels live”. 

Luckily after months of presentations we had found several friends and visionary hoteliers (Thanks Monika, Luca and Nah-Dja) who were willing to take a risk and see what we could do for them. 

We found a basement office on the Old Town Square in Prague, had actual clients, accountants and many more challenges to solve. We were in business.

The climb to the top

Our biggest supporter was Nah-Dja, a Dutch hotelier in Prague who was running the 350 unit Mosaic House and bought in to our vision early on. We embarked on the journey to onboard his hotel-hostel-hybrid which was 6 times the size of the Emblem with huge amounts of group business and brand new challenges to solve. As we onboarded the hotel, everything that could go wrong went wrong and after 30 hours of non-stop work, we considered pulling out as the system simply was not ready for this scale-up. Our developers however persisted and released upgrades at record speed, and 3 days in, the system stabilized and Mosaic House was live. We spent many months improving the ability to cater to hostels, as we learned quickly they were a complete different logic and configuration compared to hotels… and a market we had never even considered.

To date Nah-Dja is still our biggest supporter, and willing to try any of our crazy ideas/apps/integrations first. The hotel is now bringing in more revenue than ever before, and over delivering in guest satisfaction. It shows that innovators may not always win, but when they do, they can win big. 

Fast Forward

Today we have hotels in 18 countries, the largest property being 1200 beds, with fully automatic check-in features, and many more modern integrations that allow hoteliers to focus on creating great guest experiences rather than tedious administrative tasks. 

We are excited to tell you what we have planned next… so watch this space.

Matthijs Welle - CEO Mews Systems

​Mews Systems | A painless PMS switch – dream or reality?

Back when I was 25, I worked as the Front Office Manager at the Hilton Prague, a monster hotel of 800 bedrooms with a front office team of 65 persons. One unfortunate night we ran into a problem with our PMS and we learned that it was going to take several hours for the system to come back up and our latest backup report was 6 hours old.

After the initial panic subsided, we took a breath, prepared for the worst and went in “offline mode”. The first hours were the worst, trying to decide on a system that allowed for a steady workflow, and would offer a smooth customer experience, whilst ensuring no money would go missing. Once we had the flow down, it was surprisingly easy to operate the hotel.

That was one of the most challenging nights in my career, but also provided me with one of the biggest learnings that I always tell our clients: “It’s possible to run an 800-bedroom hotel without a PMS if you need to.” The experience and the realisation was for me, the best preparation for the hundreds of PMS switches and onboardings that we’ve embarked upon, as we’ve built the Hotel Platform of the future…

Real leaders take the plunge

We estimate that 90% of the hospitality industry today is locked into legacy PMS solutions. One of the major reasons why these hoteliers do not migrate to something more modern, is the fear of change and the potential downside of the switch not bringing substantial improvements and cost savings.

I was always taught, that a true leader analyses the situation in front of him, assesses the potential downsides and weighs them up against the upsides, then makes a decision and then moves forward. And so it is with innovation and steering your business: in order to climb to the top you have to move forward at all times. People who stay in the same place out of fear of bold action will lose in the long run.

When we started Mews (Disclaimer: we are a PMS solution provider) we ran into many objections from hoteliers. Some of the biggest fears we ran into, we had to assess whether they were legitimate:

·      Can I continue running my old system for several weeks? (just in case)

·      What happens with all my historic data?

·      How long will it take to switch?

·      Will my current provider come with an innovative new product in the near future?

From our 3,5 years of experience in onboarding hotels in 18 countries, I feel pretty confident about answering these:

Can I continue running my old system for several weeks?

About 50% of hoteliers ask us whether they can start using Mews and run it for several weeks side by side with their legacy system.  I can see why they would ask this, and we don’t say no. However in our experience this complicates  the operations for your team even more.

Hoteliers are afraid that after onboarding their new PMS, they might find out that the system works very differently to their old system, and want an option to return back to “the way things were”.

Firstly, if you have done your research well and tested all of the different solutions, this should not be a concern. You know your new solution has all the required features but also know its downsides and are prepared for them.

Don’t punish your team for not having done your research properly!

If you want to run both systems together, this means your team have to complete every single task twice across 2 systems, and thus, besides doubling the workload, it also opens up the possibility for frequent input errors. Every hotel who has tried to do this with Mews gave up after 1-2 days, because it simply creates too much work.

As with all things, once you’ve made your decision to switch, it’s best to stick by it and make a clean cut. If you have researched the solution properly, you already know the challenges ahead, and you should have adjusted the expectation levels accordingly.

What happens with my historic data?

When we onboard a new client, we make it clear that we strongly recommend againstimporting old data from the previous PMS into your new clean solution. I will explain why.

Often, one of the main reasons a hotel moves away from their current PMS is because of their dissatisfaction with its capabilities, integrations and user friendliness. All these points contribute to a huge and very badly maintained database with incomplete inputs, primarily, poorly-maintained guest profiles. You can import these into Mews (we have a tool for this) but you pollute a clean system with tens of thousands of profiles containing inputs which will give you inaccurate data points.

What about the financial data?

There are some really great solutions on the market today that do data aggregation and simplification. So while we (Mews) will not import all the history, at least financial history can be retained. Tools such as Snapshot or Juyo allow you to import the budgets, actuals and forecasts from a multitude of systems, thus retaining the benefit of the past (revenue figures) without the legacy of that past (bad guest data).

How long will it take to switch?

We onboard new hotels within 1 week maximum, which is not an industry standard, but we try and maintain it as our own. There are a few stages to onboarding:

1.    “Building” the hotel

The moment we have a signed contract and received configuration details from the hotel, we can create the hotel in our system within a day.

2.    Initial Training

Initially we do an online introductory training that will allow the project manager to set up the basic rates/services/templates

3.    3-day Training

We conduct 3 days of training on site, covering every aspect of the system.

Day 1: the basic users (everyone in the hotel)

Day 2: advanced reporting possibilities (supervisory level)

Day 3: all configuration aspects (admin level)

4.    2-days Onboarding support

Once everyone is trained, we will import all future bookings from the previous solution into Mews and populate these within our system. Once we agree this is correctly done, we pull the plug on the old system, and move forward.

Am I losing out because my current provider has promised that they are preparing their own innovative product in the near future?

If your current PMS is a local server-based system, and they have not yet launched a 100% Cloud First solution, it probably will not happen in the next year. (Despite the promises)

Building a system in the Cloud comes with a whole new set of challenges, which are not easily solved. If their expertise has been in working with local server based systems, they will quickly find they need a different skillset and mind-set to move into the cloud.

It took us 3,5 years to build out our feature set to the level where we compete against industry leaders. What was most important during this phase was the feedback from our hotels and their guests. We listened carefully and put all of our people (especially our developers) behind reception desks to find ways to improve the usability of the solution.

We see that the biggest problem with these “moves to the cloud” usually are not upgrades because the logic of the user experience does not change. Where we, as hoteliers thought differently, was that we thought that the old experience was broken and we wanted to start from scratch – to move the whole industry forward.

As I said earlier – I was always taught that in order to embrace the future, one must move forwards, and not just horizontally.

You’ll find that once you have migrated to a Cloud Solution, you will have regained your freedom, and switching to another PMS in the future will be significantly easier from this point forward – this is why we’re committed to always improving as we know that staying horizontal will always work against us in the long term.

So, have a look at what’s out there - there are some really great new hotel techsolutions on the market – don’t let the fear of what you could lose, cloud your judgement in moving into the 21st Century.

Matthijs Welle - CEO Mews Systems

Mews Systems | Overcoming the Challenges of Revenue Management in Hostels

Hands up anyone, who knew what they wanted to do after leaving school?

Like most people I didn’t really know what to study or which career path to take but I knew I loved hotels.  So I decided to be a chef: how hard could it be, right..? 2 bags of onions, a bag of prawns, 1 bag of lemons and a shift that made my ankles ache…. aaand I knew this was definitely not for me.

I then got chucked into hotel reservations, which is where I discovered Revenue Management – something so complex and challenging that I could really sink my teeth into. I was content for a couple of years but after a while, if you know your market well, it became very repetitive and I felt I needed another challenge: I joined one of the fastest expanding hostel chains in Europe and it’s only then that my revenue management challenge (and I mean challenge) really begun!

What was once easy –  managing only room inventory – was now doubly as difficult: two sets of inventories, beds and rooms, both, in fact, selling the same space. It took me a while at first to wrap my head around it, but after a while I realised it was actually genius. A hotel sells a double room at £100, a hostel sells all the beds in a 6 bed dorm at £25 a bed, making £150 a room. It’s so clever, yet so simple. We were seeing average room rates better that some 3 or 4 star hotels I worked for!

My goal as a Hostel Revenue Manager was simple, maximize every bed, leave no bed unsold and get the best bed rate possible!

Enter my CHALLENGE!

A revenue manager’s role is like playing financial Tetris in that you are trying to smooth out your inventory, leave no inventory free across any bed category (this will ensure people get rates and availability returned when searching 4 or more nights), knowing when to sell a bed as a bed category, keep enough rooms for the groups department, group together bed bookings to ensure rooms stay on sale…the list goes on!

So how do you manage such complex algorithms to ensure you are on top of your game? Well, here I felt like what would have really helped is a PMS system that could cope with the complexities of how a hostel sells dual inventory.

Traditional Hotel PMS systems were built to manage one set of inventory known as room inventory; if you sell a room you subtract that from the total. Simple! No?

Well, in Hostels we have 2 sets of inventory, the room and the bed both with different totals. You sell a bed in a quad you subtract a bed and a room, leaving 3 beds and no rooms to sell. You sell the whole quad room you subtract 4 beds and 1 room, leaving 0 beds and 0 rooms to sell. (and so on…)

This is the biggest challenge, as traditional PMSs were never designed to cope with dual sets of inventory, which really is the same inventory. The PMS cannot make rational decisions on how to think, and can end up grouping individual bed reservations that have just come in to fill up a room, while multiple bed reservations can completely shut down your room availability.

If the PMS cannot figure out how best to optimise this spread, it opens an array of problems: inventory being sent incorrectly through the channel manager, people trying to book a multiple night stay will receive a message that the hostel is fully booked. Coupled with different categories, this all becomes a nightmare. You spend all day having the “Empty Bed Blues”.

It’s a horrible disease and soon consumes you. Watching your inventory like a hawk, frantically moving rooms and beds around to ensure you maximise your inventory, can make you feel like you need two brains instead of one just to cope – and let me tell you that that feeling will not even leave you on weekends!

So I asked myself why is it that something so simple is so hard to fix? Is it the lack of the industry’s concern for us mere hostels? Is it that challenging that nobody can actually solve the complexities that exist in managing beds and rooms in a PMS? So tell me what, what is the problem?

The answer, well its simple….we hostels have accepted PMSs as they are, we have accepted adaptations to Hotel PMSs to do the job we hostels need done! We sent a message to the hotel tech giants out there saying “We accept your half measures and your shabby modifications on your PMS systems in order to cope with some, but not all of our problems.” We have been prepared to do the manual work, which is odd when you think about it, because buying a PMS in the first place should alleviate all the manual manipulation.

I may not have known what I wanted to do when I left school but I did know that my love for the hospitality industry was not to work harder but work smarter. This is what excites me in Mews, where the foundations for hostels were built in, at the outset, making it uniquely positioned and ready to cater to any type of traveller. The possibilities with its 2-dimensional inventory management are truly endless.

Gregory Naidoo - Head of Sales Mews Systems