A New Jersey appeals court affirmed the airline industry's right to refuse cash in-flight, validating a strategy that began when airlines first accepted credit and debit cards onboard planes in the mid-2000s.

"Airlines have increasingly moved to a cashless environment for onboard transactions with acceptance of credit/debit cards because customers have increasingly asked to use these methods of payment, plus it allows airlines to better track inventory and customer preferences," said Katie Connell, a spokesperson for Airlines for America, an industry trade group.

The lawsuit against Continental Airlines (which has since merged with United) claimed the airline's cashless policy violates the state's Consumer Fraud Act and unfairly targets low-income customers who do not have access to card payments methods. The Appellate Division of the New Jersey Superior Court ruled that the state's laws are preempted by the federal Airline Deregulation Act, prohibiting the case from moving forward.

Moving forward, many airlines continue to embrace new electronic payments methods with increasing velocity, positioning the industry as a model for emerging payments adoption.

"They have a particular incentive because they don't want their flight attendants to carry change," noted Aaron McPherson, a payments analyst at IDC Financial Insights. "As far as I know, there's no law that says you have to take cash. But it's an interesting idea, since usually the complaint is that merchants don't accept cards."

As myriad ancillary fees may leave consumers feeling nickel-and-dimed every time they fly, the airlines' embrace of electronic payments goes beyond handing over a card to pay for items like meals, drinks and headphones. The convergence digital wallet acceptance across both e-commerce and retail point of sale channels is probably best exemplified by the airline industry, where most consumers start their experience buying a ticket online, then use cards to pay for ancillary fees and other services in-person at the airport and in-flight.

"Airlines are a special case where you can enforce a no-cash policy, but it's not really something you can do anywhere else," McPherson said. "They have a captive audience; you're literally belted into your seat."

American Airlines was among the first merchants to sign on with MasterCard's MasterPass digital wallet, a rebranded and updated version of PayPass Wallet that can also handle mobile point of sale payments via Near Field Communication and bar codes.

When it announced its involvement with MasterCard's wallet in May 2012, American publicly committed to implementing the payment option on both its website and mobile app, where it already provides options for consumers to pay for flights using PayPal or by reserving a flight online and paying for it in-person at a Western Union location. American, which faces a number of integration challenges as it pursues a merger with US Airways, did not expand on its prior comments when MasterCard announced updates this week.

Airlines are taking other steps toward adopting mobile payments. For example, American recently began to deploy Samsung Galaxy Note devices to its flight attendants. The NFC-equipped mobile device has an oversized screen and stylus, merging the functions of both a smartphone and tablet. The Note is also expected to be among the Samsung devices that incorporate Visa's PayWave mobile payments app. In addition to accessing passenger information, American said it intends to use the devices for onboard transactions, pending Federal Aviation Administration approval.

For passengers, American has integrated its iPhone app with Apple's Passbook mobile wallet to store digital boarding passes. In addition, American added a feature that lets members of its frequent flier program check their miles balance and other information on Passbook.

While American has yet to integrate MasterPass, its ongoing efforts show a willingness to adopt emerging payments technologies—advances that aren't hurt by the fact that its frequent flyer rewards card is a MasterCard issued by Citi, another MasterPass participant. As MasterCard continues to develop MasterPass, attracting this type of merchant and issuer participation will be critical to its success.

Mobile payments face one significant hurdle in planes — the lack of Internet connectivity in the skies. American plans to provide connectivity to its flight attendants' smartphones using onboard Wi-Fi. In the meantime, McPherson says the airlines have an opportunity to adopt contactless payments through their cobranding credit card partnerships.

"One play they could do is equip their airline cards with contactless and if you buy a snack onboard with your airline card, you get extra miles or a discount," McPherson said.

Other airlines have built Passbook integration into their iPhone apps and represent the largest merchant segment that currently supports Apple's mobile wallet. Likewise, the recently announced Samsung Wallet was revealed with a demonstration of its integration with Lufthansa's app for Android smartphones.

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