This tech move is part of a broader shakeup. Travel companies are looking to bypass credit card networks with "alternative payments" to slash processing fees.
Emirates is rolling out a way for travelers to pay for tickets directly from their bank accounts into the airline’s bank account via an industry-run system, the company said on Monday. The move comes as many travel companies are eager to push consumers away from credit and debit card payments as cheaper options become commercially available.
Branded Emirates Pay, the solution lets consumers in Germany and the UK purchase tickets at the airline’s website by directly debiting their bank accounts.
The Dubai-based carrier is the first airline to use a white-label system jointly developed by the International Air Transport Association (IATA) and financial partners, which in Europe includes Deutsche Bank, which exchanges the data needed to initiate payments. So-called IATA Pay is now available for use by other airlines in Germany and the UK, too.
The airline trade organization said that “gradual implementation is in progress in other markets.” Its tests have included Cathay Pacific Airways and Scandinavian Airlines.
Cost-cutting is a goal for travel companies. When a consumer pays with a credit card issued by networks such as Visa and Mastercard, merchants have to pay the card-issuing banks fees of between 1 and 3 percent of the transaction. Debit-card interchange fees, set by the card networks, are only somewhat lower.
The IATA Pay system can represent an up to 93 percent reduction in cost for airlines, the trade group said. It charges a fixed fee of a few pennies per transaction regardless of the transaction value, the Financial Times reported.
In the new process, the airline digitally provides the account and payment information to a customer’s bank via the help of the financial intermediary, which in this case is Deutsche Bank. The consumer doesn’t need to be a Deutsche Bank customer to take advantage of the service. The consumer okays the payment initiation via their bank’s online site or mobile banking app.
This debit process enables real-time payments into IATA’s bank account. The next day, IATA settles the funds into the airline’s account. It works with IATA’s recently introduced financial gateway, which lets airlines accept a broader array of payments from consumers shopping on carriers’ websites.
If an airline needs to refund a ticket, it can issue a real-time refund to customers who made the original purchase using IATA Pay.
Until now, Emirates could only accept bank transfers via offline indirect processes or wire transfers. These processes had a lag, requiring Emirates and other carriers to wait days for a payment to come in before issuing tickets. The process also created a potential for errors or fraud.
In some countries, account-to-account payments are common for consumers, enabling them to avoid needing a bank-issued credit or debit card.
Pressuring credit card issuers to reduce their fees is an implicit goal of IATA Pay. The trade group said airlines had spent about $8 billion a year on payments processing before the pandemic slammed passenger traffic.
The trade group stated the effort has become easier because of regulatory changes in recent years in Europe, the UK, and Australia. These so-called “open banking” and “request-to-pay” efforts strive to make it easier for companies to encourage more direct debits and other alternative payments.
Credit card issuers note that they provide extra services for consumers, including chargebacks if consumers change their minds or dispute purchases and claimed favorable volume discounts for foreign currency exchange. During the pandemic, airlines canceled a spate of reservations, and some delayed issuing refunds or credits.
Credit cards often add other perks such as trip insurance or reward points in loyalty programs. Emirates, for example, has a co-branded credit card in the U.S. via Barclays.
In June, the Emirates Group posted a loss of $5.5 billion for the financial year ending March 31.
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Photo credit: A view of the business class cabin on an Emirates Boeing 777-200LR. Emirates is rolling out a way for travelers to pay for tickets directly from their bank accounts into its account via an IATA system. Emirates