Will Consumers Buy Airline Tickets Via Bank Accounts?

A payments initiative, backed by Germany-based Deutsche Bank, could lead to another web-based payment option for airline passengers and diminished revenue for credit card providers. But full details of the project have yet to be released, and at least one analyst questions if it would appeal to U.S. consumers.

Here’s the idea, according to reports in the Financial Times and elsewhere: The global airline industry — through the International Air Transport Association (IATA) — partners with Deutsche Bank to create a real-time electronics payment system that enables consumers to buy airline tickets through funds in their bank accounts.

Such a system would save carriers the $8 billion annually that they spend on credit card processing costs, according to the IATA. The fees charged by the such a system — it has no name yet — would be a fraction of the costs associated with credit card processing. More specifically, those fees would be fixed in contrast to the percentages charged by payment networks. Airlines would also save expenses brought about by credit card fraud.

When buying airline tickets, consumers would enter their bank account details, then Deutsche Bank would confirm the availability of funds before transferring the payment to the airline, according to the reports.

“Similar payment methods are already offered by some airlines around the world,” Perry Flint, an IATA spokesperson, told Skift.com. “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 project, which reportedly has at least the general support of Germany-based carrier Lufthansa, could be available to some European consumers in late 2018, with Germany as the first market, according to the IATA.

One analyst expressed early skepticism about the plan, especially as more details are yet to be released. Lucas Cobb, senior vice president of data strategy at MMGY Global, a consultancy that focuses on the travel and hospitality industries, said, “I think the short-term impact of direct payments to airlines, without the use of credit or debit cards, would be minimal. There might be a longer-term benefit, but it’s harder to forecast a return on what it would cost to implement.”

The proposal represents an offshoot of the European Union’s second Payment Services Directive, commonly referred to as PSD2. Not only does the regulation make it easier for younger players in the payments industry to access the data needed to create products, but PSD2 also serves to encourage the quicker movement of money over electronic channels. One of the main goals of PSD2 is to promote payments innovation in Europe.

Shahrokh Moinian, global head of cash products at Deutsche Bank, told Financial Times, “Most banks view this in a defensive manner and only reluctantly open their data. For us, it’s an opportunity for change. We have asked ourselves: Why can’t we behave like a tech company?”

Such a payment system could appeal especially to customers of low-cost carriers, such as Ryanair and AirAsia, according to Skift, because “many passengers book tickets directly via their websites, making bank transfers a potentially appealing option to add.”

Yet, Cobb said, the idea faces significant challenges — especially in the United States.

“Security concerns and timing of reconciliation would be the main barriers to consumer adoption,” he said Monday (May 14). “The U.S. is a credit-driven society, so the appeal may not be very broad here.”