Some airlines will test letting ticket buyers on their websites have an optional new way of paying that avoids the need for credit and debit cards.
The world’s top airline lobbying group, the International Air Transport Association (IATA), has decided to launch a pilot helping consumers make purchases or airline tickets and other content via a payment platform run on the airline’s direct websites.
Details remain vague. But the intent for the program directed at individual passengers appears not to be about getting travelers to bypass travel agencies. The new payment method instead appears like it will be piloted with customers who are comfortable making their bookings directly with an airline via website purchases, drawing directly from their bank accounts.
“We expect that this option will be available for testing by customers in real transactions with airlines participating in the pilot project by year-end,” said Perry Flint, a spokesperson for IATA.
For airlines, direct payment could offer a cost-competitive solution by both avoiding the high fees of credit card-issuing banks. The move could also help to avoid the losses associated with occasional fraudulent credit card transactions. The association estimates that payment processing expenses and fraudulent activity costs airlines about $8 billion a year.
The association is partnering with Deutsche Bank to create a technical pilot program by year-end. Together, airlines and Deutsche Bank’s commercial arm will develop and test a payment option on websites of participating airlines, using the capabilities of real-time, or near real-time, direct bank transfer.
“Similar payment methods are already offered by some airlines around the world,” said Flint. “But each is a proprietary solution, whereas the IATA-Deutsche Bank pilot will test a solution that is applicable to many air passenger transactions.”
There was no word on how difficult it might be to put an actual product out in markets worldwide.
Details on where the test might occur were also scant. But given that Deutsche Bank’s Germany-based team, led by Shahrokh Moinian, global head of cash products, is involved and that Lufthansa is apparently one of the airlines that had voiced interest, the first test may be in Germany.
The appeal will depend partly on the airline’s commercial model. For some low-cost carriers, such as Ryanair and AirAsia, many passengers book tickets directly via their websites, making bank transfers a potentially appealing option to add.
The pilots will only be in places where ticket sales would be subject to the new European Union regulation and based on that, one can deduce that it is only European Union member states where this could be expanded, too.
The pilots will only be in places where ticket sales would be subject to the new European Union regulation and based on that, one can deduce that it only member states are participants.
Early Industry Reaction
“This announcement is a wake up call that no industry is immune to innovation and disruptive change — particularly in payments and digital commerce.” said Silvio Tavares, president and CEO of The CardLinx Association, a fintech trade group in Silicon Valley. “New regulatory initiatives in Europe in particular are rewriting the rules of competition and innovation.”
Tavares was referring to a new European Union directive requiring that financial institutions provide open application program interfaces (APIs), or methods of transferring data.
“A solution that helps reduce the transaction fees in a low-margin industry has to be good for the industry and the consumer,” said Matt Purser, director of the UK-based Travel Trade Consultancy.
“This solution seems to be for the airlines rather than agencies,” Purser said. “But credit card merchant facilities are something the travel industry has struggled with for years. The travel industry as a whole is perceived as high risk and as such has suffered from high transaction fees as well as high levels of security.”
Anthony Hynes, managing director and CEO of Travelport-backed technology company eNett, which helps with business-to-business international payments, said: “We welcome new ideas and technologies that benefit all stakeholders in the travel value chain.” His company aims to help airlines cut down on fraud by the use of virtual account numbers, which let travel intermediaries facilitate payments to airlines and other suppliers.
Other payments tech suppliers, including WorldPay and WEX, were unable to comment by our deadline. Worldpay is the market leader among payment providers for airline back-end technology to handle payments across currencies and providers. It was taken over by Vantiv, a U.S. counterpart, in a $10.4 billion deal announced in summer 2018.
Other attempts at innovation are also in the works. IATA has been working on what it calls a next-generation billing and payments settlement system intended to enhance how airlines and third-party retailers settle funds with one another.
In the past six months, Airwallex, a financial technology startup that enables companies to make cross-border payments efficiently, closed its Series A round of $19 million. Financial technology startups Affirm and UpLift also raised millions.
The moves come as the International Air Transport Association has taken on more activist industry roles under the leadership of Alexandre de Juniac, who became CEO in September, 2016. Of note is a push for an industry-wide adoption of new technical and messaging standards that could enable airlines and travel agencies to do more customized and near-personalized retailing.