Interview: Capturing the maximum of aviation finance ecosystem
This article was updated on April 3, 2018.
Digital payments are on the rise, as companies around the world are hurrying to capitalize on new digital technology. By 2020, it is expected that digital payment technologies will be used for 726 billion monetary transactions, according to the World Payments Report 2017 by Capgemini. Searching for an outlook on the digital payment landscape in aviation, AeroTime talked with Ankur Kanwar, ASEAN and South Asia Regional Cash Management Product Head of Standard Chartered Bank.
Digital payment landscape: what is the situation now and what are the most prominent issues?
Rise of digital payments has three prominent conduits i.e. regulators rolling out new infrastructure for instant payments, fintechs challenging the traditional mode of payments and customers demanding more innovative ways of executing payments. Though the landscape of digital payments varies tremendously by market and by region, one thing is for sure, digital payment transactions will see exponential growth over the next few years. While contactless payments are the new norm in Europe, digital payments in general are expected to rise faster in the emerging Asian markets than the rest of the world.
Following are some of the practical reasons for the rise of digital payments across the globe:
- Instant payment infrastructure: Most Central Banks in Asia have been progressing rapidly on their digitisation agenda – including launching their own instant payment infrastructures. The practical usage of this infrastructure can be quite diverse. For instance, with the launch of Unified payment interface (UPI) in India, it is common to scan a QR code at airline ticketing counters and execute instant payments from linked bank accounts of the passenger to the airline using the airlines Virtual Payment Address (VPA) which is nothing but their email ID linked to the bank account.
- Alternate payment methods: Rise of alternate payment methods mostly in emerging markets has been quite fascinating. Payments using mobile wallets like WeChat (China) or Paytm (India) are fast becoming the norm in Asian markets.
- Popularity of API technology: While the Application Program Interface (API) technology is not new, its popularity has been on the rise. An example of this technology currently being used would be travel agents pre-funding their account with the airline and obtaining instant top up in the Global Distribution System (GDS) ticket booking platform. This is achieved by a real time API connectivity between the Bank and the GDS ticket booking platform.
- Cash deposit machines: Lastly while the rise of online and cashless payments cannot be doubted, large population of passengers across the world still prefer cash payments. Cash Deposit machines are not a new piece of technology, however providing the airline real time credit and information reporting leveraging API technology is one of the ways to reduce the risk of handling cash. These machines can detect soiled or counterfeit notes better than the human eye.
While all the above open up exciting opportunities in the aviation segment, it has its own share of limitations as well. For instance, instant payments are for now domestic only i.e. for cross border transactions passengers still rely on the good old card payment mechanisms. Cards do come with its security challenges and card related frauds, while can be reduced but can never be eradicated. Alternate payment channels like mobile wallet while simplifies the user experience does have limits on the amount that can be held. Encashing the mobile wallet in many markets comes with a charge and are not cheap. There’s also technical integration required to set up this whole new payment method. Above all this requires a mind-set change both for the end consumers as well as the corporate.
Kanwar Ankur, ASEAN and South Asia Regional Cash Management Product Head of Standard Chartered Bank
Why is digital payment important in aviation market?
Digital transformation is one of the concepts central among almost all industries, companies are trying to move quickly to capitalise on new digital strategies and technology. Digital payments introduce efficiency and automation, and is one of the ways businesses can adopt to help transform them into the digital era, and expand to new growth areas.
In the aviation industry, existing methods of payment are relatively inefficient and costly, which translate into inability to capture maximum value as an ecosystem.
On the customer side, the preference on the payment method for ticket or in-flight purchases are slowly shifting from the traditional channel to a more simple, convenient and faster digital method such as mobile payment. Aviation players need to be proactive at meeting these upcoming expectations to be able to keep up with these evolving preferences. We have already seen a few examples of large European carriers benefiting on sales growth from the Chinese customers through adopting WechatPay and AliPay for ticket and in-flight purchases. Other large middle eastern carriers are also beginning to adopt digital payment such as ApplePay and M-PESA. Not only are airlines making more sales but are also saving on transaction costs.
While on the business side where most of the traditional payment are still in use, travel agents are exposed to credit and fraud risks, average waiting time to book and receive airline ticket is two days, airlines baring exchange rate risks and some cash are sitting idle somewhere. With digital payment and connectivity enhancement, fund transfer and information flow can be real-time, resulting in a more effective cash usage for both airlines and travel agents. This can make much difference in business decisions making and day-to-day operation.
What can we expect in the near future in the digital payment market?
The developments in the payment landscape will gradually affect the entire aviation ecosystem and what’s critical to success is the engagement among the participants. There will be more digital innovators born to disrupt the market, create new solutions, new trends, and support each of the components that make up the payment flow.
More consumers will adopt new purchasing habits, there will be more channels for sales and payments and businesses will have to remain creative to keep up with the growing behaviours. Old and new technology, such as voice or fingerprint ID authentication methods, will be developed and enhanced to mitigate fraud risks in the growth of digital payment.
Digital will spread across the value chain, for aviation industry for example, it will not only be restricted to the customers and travel agents payment cycle, but downstream to the payment cycle of repairing, overhaul, catering etc.
Are airlines currently prepared to mitigate risks connected to digital payments? If not, what needs to be done?
As there are greater number of digital payment methods, there comes opportunities of many potential partners for airlines to leverage and stay competitive. With the drive to go digital coupled with the pressure to act with agility, it can be easy to overlook at one of the main element, payment security. New platform and payment methods are being rolled out quickly, some without having enough time to test for possible threats, thus airlines should be assessing alternatives to mitigate any potential security risks that could become a loophole in their payment space.
Many forms of digital payment could deem attractive for adoption, ie. some airlines are considering accepting blockchain-based cryptocurrency for ticket purchases, however, full understanding of the fundamentals of these newly developed currencies is essential in the success of this type of decision making.
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