Airlines reveal payment system plans to rival credit card groups
A deal between airlines and Deutsche Bank aims to save billions in transaction costs through Open Banking technology.
The International Air Transport Association (IATA) and the investment bank are piloting a payment model in a bid to reduce costs for processing payments between airline passengers and airlines.
Under the system, Deutsche Bank will collect customer payments directly from consumer accounts in line with the newly revised EU Payments Services Directive (PSD2). Currently, payments are mainly processed via credit and debit transactions. It is scheduled to begin its European rollout from the end of the year, with Germany being its first market.
“The direct payment model promises significant cost savings and efficiency gains for our members,” says Javier Orejas, head of banking EMEA and the Americas at IATA. “With airlines paying huge amounts for transaction fees and compliance – in addition to losses sustained due to fraud – this is a highly valuable innovation for the industry.”
IATA estimates its members currently incur $8bn (£5.9bn) from payment processing costs and fraudulent activity annually. Credit card providers such as Visa and Mastercard typically charge between one and three percent in fees, while Orejas said the system developed by IATA and Deutsche Bank will charge a fixed fee which will be “a matter of cents”.
It argues its system will result in more choice for travellers, along with a “smoother and less complex payments process and ultimately more convenience when paying for airline travel”.
PSD2 and Open Banking are designed to promote competition within the finance industry and encourage innovation from technology companies. Consenting customers may give permission for their data to be shared with other financial institutions, which can then offer them potentially better deals for lending or accounts.
Customers using the system would enter their bank account information and Deutsche would check in real time if the customer has sufficient funds, collect the fares and transfer the cash to the airline.
As far as security is concerned, Deutsche will use two-factor authentication for IATA and its member airlines. With direct payments being processed and received in near-real time, the trade body hopes its airlines will benefit from the acceleration of their funds.