The demise of Globespan and Libra parent Allbury Travel Group before Christmas thrust into the spotlight a firm many travel industry bosses admit to have had little or no knowledge of.
E-Clear, the credit-card processing company based in London’s Mayfair, might have been low profile, but the travel firms it has worked with, many no longer in business, such as XL Leisure Group, certainly aren’t.
E-Clear operates in a financial middle ground facilitating the passage of customer payments made on their credit cards to the merchant, its travel firm clients.
While the well-documented boom in consumer credit has been fuelled by a proliferation of card issuers, on a corporate level the credit industry has very cold feet when it comes to travel.
The small number of merchant acquirers (banks that actually process payments) have a diminishing appetite for travel due to the higher risk, inherent with the long lead-in times typical of holiday sales.
Add to that the mess the government-run ATOL customer protection regime is in and ABTA’s watering down of its protection role, which has seen the credit industry take on increasing liability, and you have a niche for a firm such as E-Clear to exploit.
It has been suggested E-Clear is like an intensive care ward for travel firms offering access to the vital ‘bloodflow’ of cash when no one else would touch them.
E-Clear chief executive Elias Elia, speaking exclusively to Travel Weekly before Christmas, insisted his firm had kept companies going for longer than they would have done without its services.
Certainly this was true of Libra parent Allbury Travel Group, which failed before Christmas 48 hours after Scottish operator Globespan.
It was an open secret that Allbury, and the Libra operation before it, had been kept going for years thanks to injections of cash from investors via an offshore parent company controlled by Elia.
But for other firms, such as Totally Travel which last month told Travel Weekly of its dealings with E-Clear over a £200,000 debt before becoming a Hays Travel member, E-Clear was the only option.
Totally Travel chairman Harry Goodman accused mainstream banks of stifling the travel industry by offering unrealistic terms, even to firms like his with healthy financial positions.
Goodman said: “The way the banking industry in general is treating the travel trade at the moment is appalling. No company can start up because the requirements for merchant facilities are so horrendous and so unreal.”
E-Clear undoubtedly has been prepared to operate in a more risky business environment than the main merchant acquirers, such as Barclaycard and Royal Bank of Scotland’s Streamline.
And the banks behind the acquirers have been able to effectively aggregate, or offset, their exposure to risk in the travel industry thanks to an intermediary such as E-Clear.
That, at least, was happening in better times before the recession started to bite, but this latest downturn has exposed many a risky business strategy.
Questions remain, in the absence of E-Clear’s latest accounts that are overdue, about how the recession has impacted its business, although Elia insisted it was in good financial health.
It also remains a matter for Globespan administrators at PricewaterhouseCoopers (PwC) to discover which financial institution, as the merchant acquirer, is ultimately liable for the payments E-Clear was contracted to process.
A contract with Deutsche Bank subsidiary Pago ended in December 2008, according to a letter seen by Travolution.
At about the same time, E-Clear is understood to have bought German NordFinanz Bank, but is Deutsche Bank still liable under its old contracts?
If PwC’s legal action, started this week, to force E-Clear to come up with the £35 million it owed Globespan is not halted, a much clearer picture is likely to emerge.
But for the wider industry one unsavoury conclusion might be that, without a properly functioning consumer protection regime in place, mainstream merchant acquirers’ risk assessment of the travel industry was right all along.
As one senior industry observer said: “What’s the aim of the game? Should we just be prolonging the life of loss-making businesses, or accept that they can’t carry on being subsidised and they have to go bust?”