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Emirates is leading a charge by airlines to escape the high payment processing fees demanded by the credit card industry, after the carrier became the first to adopt a rival system developed by Deutsche Bank .
Dubai-based carrier has implemented a very long delay scheme for real-time electronic ticket payments devised by the German provider on behalf of the International Air Transport Association, the commercial body of the airline industry.
The scheme allows 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 goal of Emirates and other airlines is for customers to choose to use it instead of paying with credit cards like Visa and Mastercard.
Emirates does not disclose the share of payments it expects to process through the new system. Between 60 and 70% of all tickets sold by the Middle East carrier are paid for by credit card, while the rest are paid using country-specific payment options.
Airlines have to pay credit card companies between 1 and 3 percent of the ticket price, with larger airlines closer to the lower end of that strip, according to industry executives . In contrast, the system adopted by Emirates known as Iata Pay charges a fixed fee of a few euro cents per transaction regardless of the ticket price.
“For us, that’s a big difference,” Emirates chief financial officer Michael Doersam told the Financial Times, adding that fees to payment providers were one of the most important components of their cost of sales.
Iata estimates that prior to the pandemic, airlines around the world were accumulating $ 8 billion a year by 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 corporate and payment solutions.
The German lender, which two years ago promised to reduce its reliance on volatile investment banking income, has identified payment processing as one of its growing markets. Stefan Hoops, head of Deutsche’s corporate bank, he told the FT last year it had the “highest strategic priority.”
The bank last month announced a joint venture with US fintech Fiserv to offer electronic payment services to small and medium-sized German companies. According to Deutsche, other airlines are in talks about using the new scheme.
Emirates has dubbed the new payment system “Emirates Pay” and Doersam said that “we are already seeing the first transactions with Emirates Pay and we are very satisfied.”
The carrier may eventually offer incentives for customers to use it, for example, a larger baggage allowance, a free upgrade to seats with more legroom, or even special rates that can only be booked with Emirates Pay .
However, Iata Pay has suffered significant delays. The airline body hired Deutsche in early 2018 with the aim of deploying it later this year. However, issues related to the European open banking regulations on which it is based and the pandemic contributed to the delay.
“Now is the right time to launch it,” insisted Hofmann, who noted the gradual recovery of air traffic and the reduction of pandemic-related travel restrictions.
Iata told the FT that he was “satisfied” “to offer this white label solution to the airlines,” but declined to comment further.
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