It has been made possible by the European Commission’s second Payment Services Directive (PSD2), and the UK’s Open Banking regulation. These regulations encourage use of so-called direct debit transactions in which payments are made from the customer’s bank account directly into the bank account of the merchant. This method offers an extremely high level of security to both user and recipient and can be instantaneous.
IATA is working to develop an industry solution that enables airlines to adopt this payment option available on their websites. The live test conducted with ipagoo was done under the UK’s Open Banking framework with IATA Pay pilot airlines, including Cathay Pacific Airways, SAS Scandinavian Airlines and Emirates, the airline body confirms.
As recently reported by The Blue Swan Daily, travellers are adopting new payment methods and can be put off if their preferred option is not available. The research from YouGov and ACI Worldwide revealed that more than a third of Britons, Americans, Chinese, French and Germans that were interviewed were unhappy they couldn’t choose to pay how they wanted.
The study showed almost one in three (30%) travellers want a range of payment options when they are booking holidays online, while more than a third (36%) were frustrated when their preferred payment method is not offered. It highlighted that credit and debit cards are still the most popular means of payment generally according to 36% and 29% of participants respectively, followed by PayPal at 17%. But in some countries consumers are increasingly opting for local payment methods with 33% choosing bank transfer in Germany and 78% using Alipay in China.
As well as offering another option to consumers, the IATA Pay initiative has clear advantageous for airlines. It can offer a cheaper payment option compared to other alternatives, provide faster cashflow with instant/near instant payment to the merchant, while offering a simpler payment process that ultimately will result in fewer lost sales, and all in a highly secure environment.
“Today’s consumers, and especially millennials, have expectations of multiple payment options including mobile and peer-to-peer. IATA Pay responds to these expectations,” explains Aleksander Popovich, senior vice president of financial and distribution services at IATA.
With airline card payment costs estimated by IATA to be around “USD8 billion per year and rising” with a large part of this cost incurred in direct purchases from airline websites, the benefits of the new payment option for airline finances is clear. One of IATA’s strategic objectives is to support airlines’ financial sustainability including controlling costs, says Mr Popovich, and this project if successfully adopted, certain delivers on that objective.
IATA says it is also working with Deutsche Bank on a prototype for Europe (excluding the UK), starting with the German market, which is expected to undergo testing in early 2019. Following this, it says it will “validate the concept with the intention to expand to other regions”.