The UK’s top package holiday companies have said that it is “inevitable” that the trade will have to segregate customer money in a separate account if the Atol system is reformed. The Civil Aviation Authority (CAA) is currently considering more than 300 responses to its consultation on potential reforms to Atol and wants customer payments to be segregated as a condition of Atol licensing, most likely in trust accounts.

About their assessment of funding arrangements and the protection of customer money, the CAA said the following: “The existence of segregated monies may provide comfort to merchant acquirers that they will be less exposed to insolvency risk and may make reduced or zero demand for security”. The CAA seeks to “use its existing powers to put in place risk mitigation measures”, which may include trust accounts. Several industry commentators believe this is the direction the CAA will favour.

Card acquirers and customer funds

Card acquirers typically favour trust accounts. These companies are cautious about working with travel companies as they deem payments as high-risk. Holidays and travel experiences are usually paid for several months in advance, and acquirers do not know what the customers’ money will be spent on in the meantime.

A trust account gives the card acquirer assurance that the funds will only be released once the travel product has been delivered. Travel trust account providers across the industry are arguing that by strengthening the position of stakeholders such as payment acquirers, the entire sector can benefit from enhanced cooperation and trust.

At a recent Travel Weekly event, Steve Heapy, chief executive of Jet2holidays, told attendees that companies had been using customers and suppliers’ money as “unsecured loans”, which they then cannot pay back when they encounter financial difficulties. This practice had catastrophic consequences during the pandemic when a number of travel companies did not handle refunds properly due to a cash-flow crisis. Healy explained: “The industry is headed for the segregation of cash, and it had only got itself to blame.”

The advantages of trust accounts

Trust accounts are the simplest and most transparent form of protecting customers, and there are several reasons why travel trust accounts are catching the attention of travel providers, card acquirers and travel industry bodies. Firstly, it is easier to provide customers with full or partial refunds if their money is protected in a trust account. Significant problems arise when the money is used as working capital, as we learned during the pandemic. Additionally, separating customer money from company working capital encourages travel providers to maintain disciplined cash flow management practices, something all businesses should aim for if they want to avoid insolvency.

Trust accounts reduce the risk for customers, merchant acquirers, suppliers, and other third parties. For this reason, the use of trust accounts can lead to more favourable commercial terms. For example, card acquirers view trust accounts as a way to ensure consumer funds are protected before travel businesses receive any profit from the booking. Finally, trust accounts are recognised as a protection method under the Package Travel and Linked Travel Arrangements Regulations 2018.

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