The International Air Transport Association is planning to test a payment technology that would pull money directly from bank accounts—a tactic that would get around payment card transaction fees.
For decades, air travelers have relied heavily on credit or debit cards to pay for plane tickets. But those who like the ease of direct payments from their bank accounts (think Venmo) may have an alternative soon.
As the Financial Times reported last week (registration), the International Air Transport Association (IATA), which knows a thing or two about putting complex systems into place, is working with Germany’s Deutsche Bank on a real-time payments system that will allow consumers to pay directly from a bank account.
The option is attractive to the industry because airlines would avoid the transfer fees that card issuers charge to process such payments, generally a rate of between 1 and 3 percent. Added up, those fees cost the industry billions of dollars annually. While there would be fees associated with the new system, the aggregate cost would be much smaller.
The new payment option would be available on the websites of participating airlines, according to IATA.
“Similar payment methods are already offered by some airlines around the world,” IATA spokesman Perry Flint told Skift. “But each is a proprietary solution, whereas the IATA-Deutsche Bank pilot will test a solution that is applicable to many air passenger transactions.”
The plan emerged in part due to some European Union rule changes. The Financial Times reported that EU regulations now allow third-party services to access a bank account for purposes of a financial transaction. The IATA system, which has yet to be named, will be targeted toward Europe first, with Germany expected to be the first pilot market.
building on a Trend
The strategy is new for the airline industry, but it’s not unheard of for a coalition of businesses in a specific industry to band together on an alternative to credit cards. (One thing that makes IATA’s solution different is that it’s generally web-based, where other attempts are focused on mobile technology.)
Prior attempts have had mixed results. The mobile industry’s solution, Isis Mobile, stumbled due to an unfortunate name; even with a name change to Softcard, the service failed to gain steam with consumers. The retail industry’s effort, called Merchant Customer Exchange, was sold off to JPMorgan Chase last year.
The banking industry has had more luck than others on this front, with its Venmo competitor, Zelle, gaining quick notice. However, news stories have suggested that the service was a fraud target, though the technology’s owner, Early Warning Systems, has disputed the extent of the problem. PwC walked back a comment in a New York Times story that suggested a high level of fraud on Zelle.