Alternative payments were the first topic of the day at ATPS 2009. Here’s a round up of my impressions after a full day of panel discussion and presentations. Once the presentations are up on the ATPS site I will provide links to each speaker’s deck. Presentations are here.
Merchants have increasingly moved to accept payments other than credit cards. Moneta’s Dr. Guido Sacchi suggested that this move to alternative payments has been driven by:
- Consumer adoption of debit
- Decreasing credit supply
- Interchange fee pressure
- Regulatory actions
- Security concerns
He cited PayPal as evidence of the trend with over 15% share of the US ecommerce market and 9% of global ecommerce payment volumes (Forrester estimates). Alternative payments are now accepted by 63% of the airline respondents surveyed by Edgar Dunn produced in cooperation with SeaMountain and Airline Information. Several presenters throughout the event discussed the move to accept debit and prepaid cards and the consideration of wallet players like PayPal.
Merchants are considering the pros and cons of various payment methods. The first step is to have a strategy and “identify appropriate payment types” {a quote that is attributed to Colm Lyon, CEO, Realex a European payment service provider, in reference to local payments, but applies equally in this context}. Each alternative payment scheme offers different levels of consumer adoption, access to new consumer segments, processing costs, fraud, chargebacks, customer experience, abandonment and implementation considerations a that drive a business case for that scheme. Merchant steering and incentives for lower cost payment mechanisms are expected to accelerate the adoption of credit card alternatives online.
Alternative payment adoption is driven by expectations of increased revenues (attracting new customers) and lower cost (payment processing and fraud). As well, in considering which payment types to offer, operational complexity is a key factor. Laurie Gablehouse, Project Manager of Technology and Fraud Prevention for several airlines including Continental presented with 41st Parameter. She explained that some alternative payments are offline processes that in airlines require the separation of reservation and ticketing. [I would add that the physical goods analogy is the separation of order and shipping. Going to the bank website for payment often provides a payment with good funds and no chargebacks, but may not provide instant settlement. Physical goods retailers can hold the order until funds are confirmed.]
Card Issuance
For many years airlines have been involved in card issuance through co-brand programs related to loyalty programs. New opportunities to offer prepaid and UATP cards have renewed their interest in card issuance. UATP cards are particular to the Airline industry and are like commercial cards issued to corporations for travel. UATP enables airlines to issue cards in their name to their corporate customers. The cards have no merchant service fees for tickets purchased for their flights and receive merchant service fee revenue when their card is used elsewhere. With a focus on corporate customers, this payment scheme has historically experienced lower fraud.
Surcharging
In recent years, surcharging has been introduced outside of the US. Quantas has been surcharging for approximately four years. Their rates are $6.60 – $7.70 for domestic and $18-$25 for all other international flights. SEPA and PSD allow surcharging in Europe. This experience is not always positive for the consumer as highlighted in recent articles looking to the Australian experience in credit and debit as a model for the US. [See article synopsis on Payments News here.]
The panel on “Balancing payment costs versus co-brand credit card income: Which is more important to the travel industry?” had a spirited debate focused on cost savings versus revenues. The most interesting consideration for airlines is the apparent conflict between airline loyalty miles and reduction in payment costs. Panelists argued that airlines are not going to lower payments costs with a push for miles cards and co-branding as this increases the uses of credit cards and moves away from alternative payments. The highly spirited debate participants were from Wirecard AG, eNett, Airline weekly and PayPal and their banter was well received by the audience.
We will post a link to the presentations from Day 1 of ATPS 2009 once they are on the conference website.
