Emirates spearheads airline industry attack on credit card fees
Emirates is leading a charge by airlines to evade high payment processing fees levied by the credit card industry, after the carrier became the first to adopt a competing system developed by Deutsche Bank.
The Dubai-based carrier has implemented a real-time electronic payment program for tickets designed by the German lender on behalf of the International Air Transport Association, the trade body for the airline industry.
The program enables real-time payments from customers who book tickets through the Emirates website, with money transferred directly to the carrier without the intervention of third parties.
The goal for Emirates and other airlines is for customers to choose to use it over paying with credit cards like Visa and Mastercard.
Emirates is not disclosing how much of the payments it hopes to process through the new system. Between 60 and 70 percent of all tickets sold by the Middle East carrier are paid for by credit card, while the remainder is cleared through country-specific payment options.
Airlines are required to pay credit card companies between 1% and 3% of the ticket price, with larger carriers falling closer to the lower end of that range, according to industry executives. In contrast, the system adopted by Emirates, known as Iata Pay, charges a fixed fee of a few cents per transaction, regardless of the price of the ticket.
“For us that is a huge difference,” Emirates CFO Michael Doersam told the Financial Times, adding that the fees charged to payment providers were a major component of its cost of sales.
Iata estimates that before the pandemic, airlines around the world racked up $ 8 billion a year for processing payments to credit card companies and other external payment service providers.
For Deutsche Bank, Iata Pay is “a key strategic project,” according to Christof Hofmann, the bank’s global head of business and payment solutions.
The German lender, which pledged two years ago to reduce its reliance on volatile investment banking income, has identified payment processing as one of its growth markets. Stefan Hoops, director of Deutsche’s investment bank, told the FT last year that he had “the highest strategic priority”.
The bank announced last month a joint venture with US fintech Fiserv to offer electronic payment services to small and medium-sized businesses in Germany. Other airlines are in talks about using the new program, according to Deutsche.
Emirates dubbed the new payment system “Emirates Pay”, and Doersam said “we are already seeing the first transactions with Emirates Pay and are very happy”.
The carrier may optionally offer incentives for customers to use it – for example, a larger baggage allowance, a free upgrade to seats with more legroom, or even special fares that can only be booked. ‘with Emirates Pay.
However, Iata Pay suffered significant delays. The airline industry body hired Deutsche in early 2018 with a view to deploying it by the end of this year. However, issues with European regulations for the open banking it is based on and the pandemic have contributed to the delay.
“Now is the right time to launch it,” insisted Hofmann, stressing the gradual resumption of air traffic and the relaxation of travel restrictions linked to the pandemic.
Iata told the FT he was “happy” to “offer this white label solution to airlines,” but declined to comment further.