Merchant Model

Merchant Model is an OTA distribution model in which the OTA acts as the merchant of record: it charges the guest's credit card at the time of booking, holds the funds, and pays the hotel a pre-agreed net rate after the stay (or sometimes after check-in).

How it works

1. The hotel loads a net rate into the OTA — the amount it wants to receive per room night.
2. The OTA marks up that net rate to set the consumer-facing price.
3. The guest pays the OTA at booking.
4. After the stay, the OTA remits the net rate to the hotel and keeps the spread as its margin.

Pros for the hotel

• Guaranteed payment — the OTA assumes guest payment risk
• Pre-paid bookings — typically lower cancellation rates
• Useful for opaque distribution — where the brand name is hidden until after booking

Cons for the hotel

• Margin opacity — the hotel doesn't always know the final consumer price
• Guest data limitation — the OTA owns the guest relationship
• Reconciliation complexity — payments arrive in batches with deductions and adjustments

Merchant model vs agency model

• Merchant — OTA charges the guest, pays hotel a net rate, keeps the markup
• Agency — Guest pays the hotel directly at check-in/check-out, hotel pays OTA a commission

Expedia historically built its business around the merchant model, while Booking.com is best known for the agency model — though both major OTAs now offer both.