Airline association tests faster payments to respond to PSD2

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The International Air Transport Association is testing new payment processes in Europe that enhance speed and transparency to the trade association's financial settlement systems and the airlines’ customer-facing transactions.

The testing is in motion, in part, because the new European Payment Services Directive (PSD2) is driving innovation competition emphasizing those types of changes in payments.

The IATA said it is investigating how to apply faster payments to passengers, whether directly from the airline or indirectly through travel agents. Globally, airlines absorb more than $8 billion in costs for merchant fees and fraud.
The IATA has two business partners in developing the faster payments test, working with a large European bank and fintech Ipagoo LLP, a U.K. company. The association expects to share its findings in September.

PSD2 requires financial institutions to have open application program interfaces in operation, while also calling for financial institutions to share data and information on transactions that will make costs and intermediaries transparent to the user.

“PSD2 clearly creates an opportunity for IATA to help airlines achieve faster, safer and cheaper transactions," Juan Ivan Martin, head of innovation for IATA financial and distribution services, said in a Thursday press release. "Given the huge amounts airlines are paying in transaction fees, fraud and compliance, this will certainly be a valued innovation.”

Instantaneous transactions in the airline industry would help avert fraud and avoid foreign exchange surprises that occur when transactions wait for processing. With greater transparency on costs, airlines will be able to manage down transactions fees, the IATA said.

Although the airline association’s financial settlement systems have historically concentrated on the indirect channel, PSD2 could enable the group to further support airlines by facilitating settlement of direct sales from airline websites and call centers.

By moving quickly to test PSD2 capabilities, the IATA aims to become the financial settlement platform of choice for airline direct sales.

Adoption is expected to be relatively easy for airlines because the underlying IBAN and SWIFT standards are unchanged.

“IATA has proven its capability to meet travel agent and airline needs for efficient settlement of sales made through the travel agent channel," Martin said. "Faster, safer and cheaper is what airlines want. And it’s what we aim to deliver."

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