Unlocking Travel Payments: Why Digital Payments are Critical for Modern Airlines
Historically, travel payments have been neglected by airlines as financials have been considered to be a back-office operation. But recently, new technologies have highlighted the importance of payment options, and how they can be key to improving the customer experience.
A recent report by The Paypers highlights how new payment trends push traditional card methods further down the payments pipeline. So what new digital payment options are airlines exploring to keep up with customer demands? Read on to find out.
How A2A Payments are Dethroning Cards as a Travel Payments Option
Airlines are faced with increasing complexity. New generations of travellers have different preferences and behaviours. They are pushing for change in the travel industry and demanding smoother payment options. For an airline, this presents a great opportunity to differentiate itself from competitors.
One reason that travel customers are demanding improved payment options is because of some drawbacks that come from a historical dependence on cards. Flights, package holidays, and other products sold by airlines are often big ticket items. Many consumers then encounter problems when making their purchases due to card limits. Airlines often also add their own additional card fees, adding further cost for travellers.
This is bad news for airlines. As customers are forced to abandon their carts after trying and failing to pay with multiple cards.
Account-to-account (A2A) payments present a much-needed solution to this all too common problem. Besides, with A2A payments airlines also benefit from faster settlements, less fraud, instant refunds for their customers, and greater flexibility in their travel payments infrastructure.
A Shift is Already Happening
This shift away from card payments has already started. In 2019, the IATA launched IATA Pay, allowing travellers to pay for flight tickets bought online by directly debiting their bank account.
This is a step in the right direction, but A2A payments take airlines one step further. Direct debit payments offer clear benefits over the card alternative but are still not the best option. Banks can be slow, and direct debits require the manual input of data, which is a blocker and potential source of error that adds another hurdle to the buyer journey.
A2A payments have several advantages over direct debit. Payments are transferred instantly, and the customer does not have to enter any of their bank details. But it’s not only at the checkout that consumers and airlines benefit from A2A.
Passengers can quickly add extra services with ease. For example, upgrading to business class, purchasing extra legroom, or buying an inflight meal. This can all be done with frictionless transactions and without the need for the passenger to have an account with the airline or a card on file.
In addition, A2A payments have a lower cost of acceptance compared to cards, allowing airlines to reduce the transaction fees they pay.
The Growing Cost of Card Payments
Card payment fees have been continuously rising, which has hit airlines hard as they sell big ticket items and charges are percentage-based. Visa fees range from 1.29%-2.54%, and Mastercard ranges from 1.29%-2.64%. However, the amount your airline will actually pay is difficult to determine. Not to mention that these fees, when applied at scale to hundreds of thousands of purchases of $1,000 plus, quickly add up to significant sums.
Credit cards and other payment processing fees were once the burden of travel agents. However, they are now the responsibility of airlines. The total estimated expenditure for payment costs is estimated at $20 billion a year for the airline industry. This is equivalent to 3% of the industry’s total revenue and demonstrates the need for airlines to forge strategic partnerships and lower their payment costs.
Unlocking the Potential of Travel Payments
Airlines’ basic cost of doing business is steep. Not only are card fees high, but governments are also levying high taxes, further diminishing profits. In addition, airlines’ everyday expenses for revenue generation, such as sales and marketing, are far from negligible.
As such, airlines need to examine where they can make savings in their operations. Travel payments are an obvious challenge; solutions are already available and ready to implement, but they are often overlooked.
The major focus of airlines has historically been on sales and acquisition. However, according to McKinsey, airline sales and marketing acquisition costs are between $5 and $15. By comparison, merchant fees vary between 0.5% and 3% of the cost of the item purchased. Even on a mid-range fare, with a $300 ticket, that’s a $9 fee, placing sales and acquisition costs and payment fees well within the same ballpark.
The Next Generation of Payment Solutions
Any airline that wants to stay ahead of its competitors must start its journey to being more customer-centric, and it can do that through payment convenience.
A2A payments not only provide an opportunity to reduce costs by eliminating high card fees but also offer a smoother customer experience.
With Brite Instant Payments, an airline can use open banking to securely and instantly receive money from your customers in one click, removing risk, improving cash flow, and reducing commission fees.
If your airline needs to transfer money fast and safely… let’s talk.
