Booking.com is currently going through a strategic move from their original 'agency' model towards a 'merchant' model, which is commonly used by numerous other OTAs.

• Agency Model - Guests pay the hotel directly - the hotel pays an agreed amount of commission to the OTA

• Merchant Model -  Guests pay the full price to the OTA, then the OTA pays the hotel either the net price (final price minus commission) or full price and are still provided with a commission invoice.

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Booking.com's 'agency' model played a big part in making booking.com as successful as they are today. Positives for hotels were:

• Positive effects on cash flow

• No risk from not getting funds if booking.com were to go under

• Guests information prior to their arrival

• Control over the final price paid by clients

Hotels therefore got tied into booking.com without realising the negative effects:

• allowing the OTA to adopt the 'free cancellation' label

• supporting the Genius loyalty program by offering discounts funded by hotels

• Accepting a 'parity and inventory clause' that predominately favoured the OTAs

• Favouring clients who booked through booking.com with the expectation of positive reviews to gain more bookings

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Booking.com needed to take a new approach to grow further. Points to note about their 'Merchant' model:

• We have seen the shift in the 'Genius Loyalty Program', creating the different levels for hotels to opt into.

• There has also been the introduction of flight and hotel bundles, restaurants and car rental.

• With booking.com's new approach to the virtual card, this is letting guests pay by methods that most hotel booking engines won't allow such as Klarna and Paypal. However, by selecting to allow virtual payments doesn't generate grater exposure as you can't filter by payment types allowed.

• Helping Booking.com's Cash Flow by them receiving payment and holding onto funds until day of check in.

• Guests can pay in their own currency - booking.com benefit from the difference in exchange rate.

There are a couple of advantages:

• hotels don't need to deal with collecting money from guests on check-in or if payment is taken on check-out, guests doing runners

• booking.com will deal with any charge backs and these will no longer effect the hotel

 

In 2018, 20% of Booking.com reservations were processed through the OTA's payment platform. This increased to 27% in Q1 of 2021 and 40% in Q1 of 2022. Booking.com has already achieved a global adoption rate of 60%.

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There are a couple of things that aren't obvious or warned about which are:

• For many, payment providers often charge a higher transaction commission % for virtual cards. 

• Booking.com can undercut you whenever they like by 'funding the discount' where they sacrifice some of the commission they pay you - therefore rate parity becomes impossible.

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At the moment, hotels have the opportunity to opt out of this 'online payments' option. My advice is to opt out now.