Benefits and challenges for mobile payment for airlinesNews / Technology | OnlineBy Karthick Prabu | December 27, 2013Share This article was originally published on Mobile payments at airlines are now a key area of focus, with 57% of carriers estimating it will drive revenue equal to credit cards over the next two years. WorldPay, the airline payments and settlements company conducted a study among 56 airlines to analyze the motivations, trends and future plans for offering alternative payments. Airline alternative payment landscape With over 230+ payment types globally, the payment landscape is complex. To date, carriers have largely been dependent on credit cards to take payments online because of their global recognition, reliability and ease of payment processing. But, in many markets, credit cards are not the preferred payment option and airlines that continue to solely rely on this method are missing out on potential revenue opportunities from customers that don’t own a credit card, or are unfamiliar with this payment type. These alternative forms of payment (AFOP) include real-time bank transfers, offline credit transfers, direct debits, eWallets, paper-based payments and mobile payments. In 2013, traditional payment methods have slipped, with alternative methods gaining ground. Use of credit cards declined by 4% between 2012 and 2013.Debit cards lost some ground, with 64% now accepting them as a form of payment compared to 67% last year.Offline bank transfer usage also appears to be on the decline: last year, 25% of respondents accepted them; this year that’s down to 8%.Direct debits and cash vouchers declined.Mobile payments increased by 150%, with 25% of respondents this year saying they accepted mobile payments, an increase from just 10% last year.E-wallet payments gained acceptance: up from 33% last year to 38% this year.Prepaid cards were accepted by more respondents this year – 13% now, up from 8% in 2012.Air miles and loyalty points grew in popularity: this year 54% of respondents said they accept them, up from 45% last year. It is predicted that alternative payment method growth will outstrip that of cards by 2015 (18% vs. 14%), particularly in developing economies such as Brazil and India. Challenges of introducing alternative payment methods In credit card transactions, the refund process is much simpler to manage compared to alternative payment types. Majority of AFOP methods do not have a direct refund path – meaning it is impossible to send a refund back to the original payment instrument. To support refunds, the carrier must obtain bank details from the customer and submit these details to instigate a bank transfer refund. AFOP methods need to have the capabilities to respond to real-time price changes to ensure the carrier is able to collect the correct transaction value from the customer. A key issue of AFOP is integrating those into current systems: 73% of airlines cited this as a challenge. The cost of implementation (39%), fraud risk (32%) and lack of knowledge/ resources (32%) are secondary barriers. Despite these issues, gaining internal consensus to offer a choice of alternative payments is only seen as a challenge by 7% of those surveyed. However, further education is still needed with 18% of respondents saying that the benefits of offering different payment methods are unclear. Drivers for growth Airlines need to consider specific factors such as payment method preference, device penetration and country telecommunication infrastructure when looking to implement an alternative payment strategy. There are a number of key markets which require an alternative payment strategy. Germany is a global leader in alternative payment adoption with alternatives making up 66% of a total e-commerce value of €45 billion. 14% of respondents say this market is driving demand for alternative payment method implementation. China is also driving demand for alternative payments – 8% of respondents report that this is the country driving greatest demand. The Netherlands and the UK take the third and fourth place at 6% demand. Russia, despite having a varied landscape when it comes to payment methods, was cited by just 3% of respondents as driving the demand to provide alternatives. Motivations for offering different payment types Across the airline industry, all types of airlines are currently exploring the alternative payment options. Alipay, the preferred online payment tool in China says the biggest drivers for AFOP methods are meeting customer demands, cost and competitive differentiation. KLM says the initial catalyst for AFOP was to reduce the cost of transactions, although customer demand is now the biggest driver. Credit cards come with an associated percentage transaction fee, whereas the majority of alternatives come with a flat fee. For KLM, in their home market of Holland, 60% of customers chose AFOP over credit cards, partly driven by the usability of alternatives in the Dutch market and partly driven by the avoidance of credit card surcharging. The key reason cited for offering AFOP is to meet the demand of customers: 89% of respondents said this was the most important reason. However, alternative payment methods can also reduce costs and thus increase revenue, according to 64% and 59% of respondents respectively. Optimising revenue A key theme that emerges from the survey is the growth in mobile usage and the potential it offers airlines. 57% said that mobile is the method that has the greatest potential to drive revenue over the next two years. In second place, e-wallets are seen as having the potential to drive revenues by 48% of respondents, with the debit card in third place, cited by 43%. Managing direct customer interaction and payments together will become a priority in the future: 32% of respondents said they plan to accept mobile payments in the next two years. Benefits of offering alternative payments Airlines acknowledge that AFOP can help them reach new customers (63%), and they also point to lower processing fees (61%) and a lower fraud rate (50%). Additionally, a wide choice of payment methods can help airlines differentiate themselves to potential customers and also help drive customer loyalty, said 39% and 38% respectively. A key challenge for airlines is the abandonment of bookings during the purchasing process due to customers not being able to use their preferred payment method, or because their card is declined. Not surprisingly, 34% of airlines said reducing booking abandonment is a benefit of offering alternative methods of payment. Other benefits include a higher conversion rate, improved process automation, as well as a higher transaction value. Click the below image for a high-resolution version. The future 32% of those surveyed said they plan to accept mobile payments within the next two years, whilst 29% are planning to offer e-wallets and 25% said they plan to accept prepaid cards as a form of payment. Only 11% plan to offer Air miles or loyalty points and 9% cash vouchers. E-wallets and mobile are the primary payment methods of choice under consideration. NB1: The study can be downloaded here - Part 1, Part 2.NB2: Aircraft money image via Shutterstock.