Aside from the obvious health and wellbeing implications, the impact of the coronavirus pandemic on people’s holiday plans and, specifically, how they can ensure the payments they have made for cancelled holidays are honoured either in cash or in kind, has been possibly the other biggest news headline over the past few months. Paul Rodgers, Chairman at Vendorcom speaks with the Fintech Times following the Airline Payment Forum earlier this month.
The handling of high volumes of customer requests by an industry desperately struggling to stay afloat has posed an unprecedented challenge. No doubt, there have been lessons learned, and there’s a broad recognition that things will have to change. Below, industry insiders give their take on those issues and how they think things could be done better, in a post-COVID world.
Transparency key to rebuilding trust
One of the biggest issues has been retaining the confidence of a confused public, worried about losing significant amounts of money and trying to understand their rights when offered the choice between cash refunds and vouchers-in-kind.
Three forum members highlighted the importance of offering greater clarity for customers about the issue of vouchers versus refunds. To achieve this, they commented, airlines, acquirers and card companies must communicate and collaborate with each other, sharing relevant information.
Being honest with passengers about their options for vouchers and refunds – and the relative benefits of each – is vital to maintaining and increasing customer confidence. For one group member, the solution is ‘all about the strength of that relationship’.
Another cited Visa and Mastercard’s approach to sharing information with their members and offering them the option to change their minds having accepted a voucher, as an example of good practice.
Refunds – whose problem?
While, instinctively, giving people their money back if they want it would appear to be the right thing, one attendee explained that making that happen amidst existing airline-card issuer-acquirer structures is no mean feat.
If the airline can’t give customers what they want, he said, the liability extends right back up the payments chain to the card issuer and, ultimately, to the acquirer. So, where does the buck stop, and where will the money, ultimately, come from?
The situation is further complicated by the fact that, where airlines have folded, claims are having to be made, cross-border, to European administrators. And then there’s the need to remain vigilant to potential fraud, all adding up to a significant financial and administrative headache.
The situation is further complicated by that fact that many administrators don’t appreciate the operational and contractual complexities of card payments.
One acquirer representative said that the level of risk to organisations like theirs can be exponential: “As an acquirer you’re typically trying to hold cash for the timeframe of the chargeback period, because that’s where your risk is. A MasterCard chargeback fee that’s 15 euros per chargeback, if you deal with one of the large airlines, is a huge cost to acquire.”
Someone else from that sector called for a collaborative solution: “There’s always going to be a tension between an acquirer and an airline due to the low margins the acquirers receive for the liability they are taking. Generally speaking, airlines have done a phenomenal job of cutting costs, preserving cash and keeping customers informed, but again the dialogue is important so that we can work through this process together.”
For vouchers to work, the industry must build consumer confidence
An airline representative highlighted the impact mass job loss announcements from BA and Virgin have had on the issue of refund payments.
“When it comes to chargebacks, the airlines need to refund customers and pay the acquirers, the issuers are not liable,” she said.
“We need to build confidence among consumers that their vouchers are valid and their airline won’t be liquidated.”
Innovation can ensure a stronger, post-COVID, future
Another forum member called for a complete re-think of the payment chain.
“No single acquirer wants to take the risk on an entire airline, this would be viewed as one giant credit risk,” he said.
“Typically, as things become more difficult, demands for collateral go up and you end up with a difficult balance sheet. Yet card acquirers want more collateral at a time when there isn’t any, because Visa or MasterCard will turn to them to refund consumers if the airline isn’t there to do so. So, acquirers perform a role as an intermediary, managing their own credit risk underwriting, balance sheet and reserves.
“Using a model with no collateral and no rolling reserves, we could help airlines during tough times. With the money in a trust account, they could share it with all stakeholders – investors, government, suppliers etc.
“As soon as the 30 days’ waiting period before customers travel is up, they would be able to pay out to all members of that group, creating a payment out to their normal current accounts.
“Only when the trustees authorised it would the funds be released, so everybody would be watching everybody, with representation from all sides,
“With no collateral position, we could move to zero days. So, any money in the fund would only be released to airlines on ‘wheels up’, everyone would be in alignment. It’s all about communication and collaboration.”
What next with SCA?
The consensus amongst the group was that the extension to the compliance deadline for Strong Customer Authentication (SCA) is to be welcomed given the significant pressure the air travel industry is under at present. However, greater clarity is needed about the new timescales for the introduction of this new payment security measure across UK and European jurisdictions. The postponement also needs to be balanced with other effective measures to help prevent the current, heightened risk of fraud.
More on this in our next issue, where we’ll take a closer look at changes that need to take place in the airline payments industry to protect it and its customers in future times of crisis.This will include a detailed analysis of SCA issues relating to airline payments. Copyright © 2020 Vendorcom, All rights reserved.
