The Execution Engine: How WEX VCNs Amplify Benefits and Control Risks of the Merchant Model

In the first part of our series, we established that the merchant model has become the primary model for the world’s largest travel intermediaries. However, adopting the role of merchant model is merely the prerequisite. To extract maximum value from this model, executives must deploy a B2B payment strategy (from the travel intermediary to travel suppliers) that bridges the gap between diverse customer demands and the complex, fragmented preferences and capabilities of a global travel supplier set.

WEX VCNs are built to bridge this gap, as they are designed specifically for this purpose and are widely accepted by travel suppliers around the world. WEX VCNs amplify inherent benefits of the merchant model, while providing the safeguards necessary to help control, minimize, or eliminate many of the risks in global payments.

1. Amplifying Product Innovation – The Unified Retailing Workflow

The most significant commercial advantage of the merchant model is the ability to offer “unified retailing”, meaning bundling disparate travel components into a single, seamless customer transaction. WEX VCNs are a mechanism that can make this operational at scale.

When a Travel Intermediary receives a single inbound payment for a complex itinerary, WEX VCNs fuel a “one-to-many” automated settlement flow. A single inbound payment event can trigger discrete, automated payments to each travel supplier (airline, hotel, or rail operator) and does so in a way they can very likely already accept. This allows the intermediary to:

• Scale Dynamic Bundling: Package diverse inventory without a proportional increase in back-office complexity.
• Standardize Global Outbound: Deliver payments to thousands of suppliers via a single, unified framework, helping ensure consistent acceptance.

2. Neutralizing Challenges of a Global Supplier Base

The merchant model shifts some liability to the travel intermediary. For example, the travel intermediary may be liable to the customer from whom they received payment if the travel supplier fails to deliver the service for which the customer had paid the travel intermediary. Travel is generally prepaid, so this risk can be material, and can be especially significant where the travel supplier is remote and relatively unknown to the travel intermediary or if a single travel supplier has taken a large volume of payments but then becomes unable to deliver the service (e.g. supplier failure, such as airline bankruptcy with immediate ceasing of operations). WEX VCNs function as a critical risk-control layer. For a CFO this is not just “security”, it can mean the difference between continued operations or business failure.

• Supplier Default and Insolvency Protection: Bank transfers, and bank transfer-based payment processes offer no inherent recourse. Travel intermediaries using such methods for payments to travel suppliers generally have no easy and fast way to recover funds if the travel supplier doesn’t deliver the services for which payment was made. Bankruptcy proceedings are typically slow and expensive and are unlikely to yield a recovery rate of 100%. Conversely, WEX VCNs provide robust chargeback rights, managed via major card schemes. For example, WEX has recovered close to US$60M via chargebacks for travel intermediaries across over a dozen airline failures since 2017. Chargebacks work without the cooperation (or active operation) of the travel supplier and typically deliver 100% recovery rates within a few weeks in instances of travel supplier failure to deliver required services.
• Custom Card Controls: Because WEX VCNs are normally generated for single, specific transactions with pre-defined limits and with up to an additional 10 controls defined, the traditional avenues for fraudulent activity and supplier overcharges are significantly minimized.

3. Global Market Access and Cash Flow Benefits

Optimization of working capital while managing payments and risk is a key priority in any organization. WEX VCNs can amplify the merchant model’s treasury benefits by providing:

• Global Settlement Flexibility: Intermediaries can accept payment in a traveler’s local currency and payment method and then settle with the supplier in any of 21 currencies issued by WEX, helping to bridge the FX gap and reduce cross-border friction. In practice, WEX VCNs can be charged in almost any local currency, with over 130 local currencies typically observed as POS currencies on WEX VCNs in a typical year.
• Fast and Flexible Payment Cycles: Intermediaries can optimize the timing of their outbound payments, aligning settlement with their internal liquidity requirements rather than being dictated by legacy supplier remittance cycles. Travel suppliers can also often receive payments faster with WEX VCNs than with alternatives. For example, hotels which may face 30+ day invoice cycles when waiting for bank transfers can receive immediate payment with a WEX VCN, which then settles based on their acquirer’s terms (usually no more than a few days). Airlines, which may be beholden to settlement cycles of legacy mechanisms, can receive payment immediately and also settle based on their acquirer’s terms, removing the effective trade credit they would otherwise be providing to travel intermediaries (with the associated credit risks).

4. Mitigating Administrative ‘Leakage’ and Scaling Precision

For a CFO or VP of Distribution, the “hidden” challenge of the merchant model is the increase in transactional complexity. Managing large volumes of daily payments as the merchant of record creates a reconciliation requirement that can lead to significant “margin leakage” through overcharges, duplicate billings, manual errors, and related fix or prevention efforts.

WEX VCNs can help transform this burden into smooth flows by replacing manual oversight with automated management:

• Seamless 1:1 Automated Reconciliation: Unlike legacy corporate cards or bank transfers, every WEX VCN can be generated with a unique identifier and can be tethered to a specific booking. The automation enabled by this clear linkage significantly lowers the risk of administrative errors.
• Mitigating “Administrative Leakage”: In the travel industry, “leakage” often occurs through incorrectly processed payments (under- or over-payments) as well as partial refunds and other exceptions. By using WEX VCNs with pre-defined spending limits and strict merchant category controls, intermediaries can proactively prevent overcharges before they happen, helping to safeguard the net margin of every transaction. Additionally, refunds (partial or full) can be processed straight back onto a WEX VCN by a travel supplier when needed, enabling precise tracking and resolution in such scenarios.
• Granular Data Visibility: Every WEX VCN carries a rich payload of enhanced data. This is vastly different from traditional bank transfer-based methods, because the data travels together with the WEX VCNs and therefore travels with the payment, rather than arriving as a separate spreadsheet or CSV file related to one or more bulk transfers. This attribute of WEX VCNs provides treasury and finance teams with easy visibility into flows and performance, and can power advanced analytics that would otherwise be near-impossible.