eBook | Modern Merchant Model

In the ‘agency model’ or ‘pass-through’ model, the travel intermediary accepts the booking but does not handle the payment from the end traveler. For hotel bookings, this typically means that the end traveler pays the hotel directly upon arrival or at check-out. And for flight bookings, the travel agency passes the end traveler’s credit card information to the airline.

Merchant model: maximizing travel traffic

As mentioned above, travel intermediaries are well positioned in the market, holding the key both as buyers of travel supplier services and as sellers of those services to their end customers. By maximizing this position, they can remain firmly embedded in the ecosystem.

The expectations of end travelers have changed over the past ten years. In addition to the digitalization element of online purchases, another factor has been the development of new payment methods. Many travel intermediaries have had to adapt to a digital, more comprehensive retail concept to meet these new expectations. This, in turn, has necessitated even greater use of the merchant model to offer these payment options.

The following is an overview of the advantages of the merchant model (Merchant of Record or MoR model) over the traditional agency model (pass-through model):

Where did the preference for the merchant model start?

To answer this, we only need to focus on airline bookings, as they have a long history of using the merchant model. This includes the IATA BSP, which was introduced in 1971.

However, even in the 1980s, hotel bookings were made almost exclusively through the agency model, and customers expected to pay for their stay at the accommodation. This began to change with the founding of the Hotel Reservations Network in 1991. The company was a hotel-focused travel agency accepting bookings through toll-free numbers and reportedly “spending 90% of [their] time as a collection agency and 10% of [their] time expanding the business.”

The founders believed something had to change and approached hotels with an offer to buy inventory at a net price up front, then resell it to travelers at a gross price. The former Dorset Hotel in Manhattan was the first to officially sign up. The Hotel Reservations Network was acquired by USA Networks in 1999, becoming Hotels.com. It was joined by Expedia, which was acquired by USA Networks in 2001. Both companies focused on the merchant model, and Expedia eventually launched the merchant model for hotel bookings in Europe during its expansion in the early 2000s.

The original goal of the merchant model – to eliminate commission collection effort – changed over time to enable, deliver, and maximize a range of other benefits.⁶

eBook: the modern merchant model

Chapter 3: Comparison of travel intermediary business models

Merchant or agency

Comparison of travel intermediary business models: Merchant or agency

Merchant model: maximizing travel traffic

The following is an overview of the advantages of the merchant model (Merchant of Record or MoR model) over the traditional agency model (pass-through model):

Where did the preference for the merchant model start?

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