Emirates spearheads airline industry attack on credit card fees


Emirates is leading a charge by airlines to escape the hefty payment processing fees levied by the credit card industry, after the carrier became the first to adopt a rival system developed by Deutsche Bank.

The Dubai-based carrier has implemented a long-delayed scheme for electronic real-time payments for tickets devised by the German lender on behalf of the International Air Transport Association, the airline industry’s trade body.

The scheme enables real-time payments from customers who book tickets on the Emirates website, with the money transferred directly to the carrier without the involvement of third-parties.

The aim for Emirates and other airlines is that customers opt to use it rather than pay with credit cards such as Visa and Mastercard.

Emirates does not disclose the share of payments it hopes to process via the new system. Between 60 and 70 per cent of all tickets sold by the Middle East carrier are paid with credit cards, while the remainder is cleared via country-specific payments options.

Airlines have to pay credit card companies between 1 and 3 per cent of the ticket price, with larger carriers closer to the lower end of that range, according to industry executives. By contrast, the system adopted by Emirates known as Iata Pay charges a fixed fee of just a few euro cents per transaction irrespective of the ticket price.

“For us, this is a huge difference,” Emirates chief financial officer Michael Doersam told the Financial Times, adding that fees to payment providers were one of the biggest components of its cost of sales.

Iata estimates that prior to the pandemic, airlines globally stumped up $8bn a year for the procession of payments to credit card firms and other external payments service providers.

For Deutsche Bank, Iata Pay is “a key strategic project”, according to Christof Hofmann, the bank’s global head of corporate and payment solutions.

The German lender, which two years ago promised to lower its dependence on volatile investment banking revenue, has identified payments processing as one of its growth markets. Stefan Hoops, head of Deutsche’s corporate bank, told the FT last year that it had the “highest strategic priority”.

The bank last month announced a joint venture with US fintech Fiserv to offer electronic payments services to small and medium sized companies in Germany. Other airlines are in talks over using the new scheme, according to Deutsche.

Emirates has dubbed the new payment system “Emirates Pay”, and Doersam said “we are already seeing the first transactions with Emirates Pay and are very satisfied.”

The carrier may eventually offer incentives for customers to use it — for instance, a bigger luggage allowance, a free upgrade to seats with more legroom, or even special fares that can only be booked using Emirates Pay.

However, Iata Pay has suffered from significant delays. The airline industry body hired Deutsche in early 2018 with a view to rolling it out by the end of that year. However, issues tied to the European open-banking regulations it is based on and the pandemic contributed to the delay.

“Now is the right time to launch it,” insisted Hofmann, pointing to the gradual recovery in air traffic and the easing of pandemic-related travel restrictions.

Iata told the FT that it was “pleased” to “offer this white label solution to airlines” but declined to comment further.



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *