How to Become a Payment Master

Transcription

1 How to Become a Payment Master World Financial Symposium 2014 World Financial Symposium 2015 World Financial Symposium 2014

2 Payments in the Air Travel Industry: Facts and Figures World Financial Symposium 2014 Pascal Burg Director Edgar Dunn Session Sponsor World Financial Symposium 2015 World Financial Symposium 2014

3 Let s try to identify interesting facts and opportunities 3

4 Background: Payments is complex and rapidly changing, which creates new opportunities and challenges for airlines 1. New consumer behaviours 2. Digital innovation 3. Regulatory changes 4. New models / entrants Multi-channel purchases (e.g. KLM s social media payments) Expectation for simple and fast customer experience Payment with a mobile Mobile / tablets as a mobile POS Contactless cards GPS-driven payment Others Reduction in interchange fees Increased ability to surcharge Many other regulatory changes in payments (esp. in the EU) PayPal, Google, Amazon, Apple Wallets (e.g. v.me, MasterPass) Niche products (e.g. virtual cards for B2B or B2C transactions) 4

5 Payments impact various P&L line items for airlines: (a) direct revenues, (b) indirect revenues, and (c) distribution costs Airline P&L Revenues Costs Drivers 1. Passenger ticket sales 2. Ancillary revenues 3. Cargo sales 4. Other 1. Fuel 2. Salaries 3. Other operating expenses: Distribution costs (TA commissions, GDS fees, payment acceptance costs and fraud losses) Rental / landing fees Maintenance, aircraft rentals, etc. Payment drivers that impact pax sales: Range of payment methods (e.g. AFOPs*) Optimising card authorisation rates Credit card surcharging policy Fraud controls (e.g. avoid false positives) Payment drivers that impact indirect / ancillary revenues: Cobrand cards and prepaid (e.g. gift cards, compensation for pax) Total cost of payment acceptance: fees plus internal costs (e.g. back-office) Fraud-related losses *Alternative Forms of Payment (AFOPs) such as PayPal, domestic debit cards, etc. 5

6 The right payments strategy enables airlines to generate additional revenue and reduce distribution costs let s focus on revenue first Payments-related opportunities 1. Generate revenue 2. Reduce distribution costs 1.1 Direct revenue: passenger revenue 1.2 Indirect revenue: ancillary revenue 6

7 1.1 Improving passenger revenue? Optimising conversion rates thanks to alternative forms of payment Key fact: Wallets can help increase conversion rate (esp. for m-commerce) Source: Adyen Key question: Which wallet(s) to enable for which markets? But how to address increasing complexity (e.g. reconciliation) 7

8 1.1 Improving passenger revenue? Optimising authorisation rates could generate >$10m in incremental revenue Changes in authorisation rates (optimal acquirer routing based on BIN) Impact of authorisation rates for one airline? Assuming: an airline with $1bn in online direct card sales Authorisation rate 1% below benchmark Revenue leakage of $10m Key fact: Non-optimised auth rates generate revenue leakage Source: Adyen, EDC estimates Key question: How to maximise card authorisation rates? 8

9 1.1 Improving passenger revenue? Examples of credit card surcharging in the UK market Airline Credit card charges? Airline Credit card charges? A B C D E F G H No charges No charges 4.50 per pax 4.50 per ticket 5 per booking No charges 2% per booking No charges I J K L M N O 3% per booking 2.5% per booking 4.50 per pax 4.50 per booking 2% of total or 5 per booking (whichever is highest) 2% of total or 5 per booking (whichever is highest) 1.99% per booking P 2% per booking Key fact: Credit card surcharging generated 300m yearly in the UK alone Key question: Whether / where to deploy credit card surcharging? Source: OFT 9

10 1.1 Improving passenger revenue? Reducing false positives in fraud prevention activities could generate >$2m in incremental revenue 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% MRC Global Fraud Survey 2015 % Sales Rejected / Denied in Top Country 2.64% Impact of false positives for one airline? Assuming: an airline with $1bn in online direct card sales 10% of false positives Revenue leakage of $2.6m Key fact: False positives generate revenue leakage Key question: How to prevent false positives whilst keep fraud in check? Source: Merchant Risk Council, EDC estimates 10

11 1.2 Improving ancillary revenues? Protecting cobrand card revenues in some geographies and penetrating other geographies Key fact: IdeaWorks estimated that top 7 FFPs generated sales of miles of $4bn to card issuers Key question: How this ancillary revenue evolve in the future? Source: IdeaWorks estimates for the US market 11

12 The right payments strategy enables airlines to generate additional revenue and reduce distribution costs Let s look at distribution costs Payments-related opportunities 1. Generate revenue 2. Reduce distribution costs 2.1: Total cost of accepting cards 2.2: Fraud losses 12

13 At first, how big it is? Close to $290bn of airline tickets paid by cards and when the airline is the merchant Source: EDC estimates, IATA Global annual passenger revenue: $565 bn (IATA) Paid by card AND airline as merchant: $296 bn Paid by card AND agent as merchant: $76 bn 13

14 generating over $7bn in total costs of accepting cards (for airlines) Global annual passenger revenue: $565 bn (IATA) Paid by card AND airline as merchant: $296 bn Costs for airlines: merchant fees: $6.5bn fraud loss/other: $0.9bn TOTAL: $7.4bn Source: EDC estimates, IATA 14

15 Reducing distribution costs? Potential options include issuing UATP, AFOPs, cobrand / private label cards, surcharging, updated fraud tools, etc. Costs for airlines: merchant fees: $6.5bn fraud loss/other: $0.9bn TOTAL: $7.4bn Key fact: Example - Total financial upside for airlines that are UATP Issuers close to $350m per year Key question: What should be the high-priority cost reduction opportunities for airlines? 15

16 We would suggest a three-phase approach for airlines to optimize payments Phase payments diagnostic Phase 2 Payments strategy Phase 3 Payments optimization What are the priority payment issues? Example: Which FOP should we accept? Example: Which payment partners? 16

17 A payment diagnostic covers all of the areas impacted by payments and is likely to identify a total annual opportunity >$10m Loyalty Customer Service / Sales Fraud Treasury / Cash management Payments Customer Refunds Example: Total payment opportunity as high as $12m annually for a $2bn revenue airline Ancillary revenue Corporate customer relations Technology 17

18 Thank you! Pascal Burg Director, Edgar Dunn World Financial Symposium 2014 Session Sponsor World Financial Symposium 2015 World Financial Symposium 2014

19 How to Become a Payment Master Moderator: Ralph Kaiser, President and CEO, UATP Panelists: Marcel Koppes, VP Sales International Travel, Adyen World Financial Symposium 2014 Guillermo Olague, Corporate Development Manager Vivaldi Payment Services, Accelya Celia Pereiro, Head of Payments, Amadeus Thomas Drohan, VP Sales EMEA, GuestLogix Thomas Conlon, Head of Product, VeriFone Session Sponsor World Financial Symposium 2015 World Financial Symposium 2014

20 How to Become a Payment Master Ralph Kaiser President and CEO, UATP

21 Complex Payment Market Accepting and processing payments has become increasingly more expensive due to the rising costs of transaction fees and related charges What can airlines, as the world s biggest merchants, do about this?

22 Airlines pay more than Record Number Fees US$7B annually to process payments 1 1 Payment Unsettled: Cost, Opportunity and Disruption in Travel s Complex Payment Landscape 22

23 Record Costs 2 Global Travel Practice. Edgar, Dunn, & Company, n.d. Web.

24 Indirect Channels: GDS x = 60% of all tickets are distributed through the three major GDS 1 1 "A Picture Is Worth $7 Billion." Farelogix, Web. 2 "ANALYSIS: IATA Awaits DOT Approval of Controversial NDC." Flightglobal, July Web. Airlines pay approximately US$12 in GDS fees per ticket versus US$2-US$3 on airline.com (websites) 1 IATA equates this to around US$7B annually 2

25 Why does this matter?

26 US Airline Operating Expenses Source U.S. DOT

27 Factor in Credit Card and Bank Fees 5 th Highest Expense Block

28 Impact of Payments in Travel What if you could save hundreds of millions of dollars by conducting an analysis and implementing a payment strategy?

29 What are your true costs? Do you know what you re really paying? 3.2 MC World/Elite Std - Business MC World Std - Business MC Commercial Std - Enhanced Business 3 MC Commercial Std MC World/Elite T&E I - Business MC World T&E I - Business MC Commercial T&E I - Enhanced Business 2.8 MC World/Elite T&E II - Business MC World T&E II - Business MC World/Elite T&E III - Business 2.6 MC Commercial T&E I - Business MC Commercial T&E II - Enhanced Business MC World T&E III - Business MC Commercial T&E III - Enhanced Business 2.4 MC Commercial T&E I - Corporate MC Commercial T&E II - Business MC Commercial T&E III - Business MC Commercial T&E II - Corporate 2.2 Visa Commercial CNP Corporate T&E MC Commercial T&E III - Corporate Visa Commercial B2B Corporate T&E 2 Visa Commercial Corporate T&E - Lev II 1.8

30 Impact of Payments in Travel Effective Payment strategies are critical: having the right strategy can significantly reduce cost and provide incremental revenue

31 The Payment World is Complex There is an influx of companies now offering payment services: E-wallets PSPs GDS(!) And don t forget... IATA EasyPay Does one size fit all? NO!

32 Impact of Payments in Travel Don t just look at the overarching cost, but determine your true cost of payment and lower it by improving your payment acceptance methodology

33 Payment Methodology & Efficiency Ask: Do you have efficient processes or a legacy system in place? Look at your channels What works best? What maximizes net revenue? Are payments being optimized?

34 Payment Solutions => O P T I O N S

35 Alternative Forms of Payments

36 The AFP Landscape

37 Why Are AFPs Important? By 2017, AFPs will account for 59% of all transaction methods Source: WorldPay 2014 Report Your global guide to Alternative Payments, Second edition

38 AFP Benefits Cost In general, AFPs can be material less expensive to accept versus traditional payment methods Security Unlike traditional credit card transactions, many AFPs provide additional security features Risk Using bank transfers to accept payments does not carry any inherent risk to the merchant, and offers reduced chargebacks

39 AFP Benefits Reach untapped markets 90% of CheapOair sales with bitcoin are new users Be a first mover to capture market Mobile on the rise technology leapfrogging

40 Phocuswright Study: Corporate Buyer Outlook on Payment Methods Mobile Prepaid Single-use credit cards AFPs Gift cards/vouchers Expansion of traditional networks into new areas of acceptance

41 Mobile and Alternative Forms of Payment (AFPs) * Payment Unsettled: Cost, Opportunity and Disruption in Travel s Complex Payment Landscape, March 2013

42 Corporate Buyer Outlook on Payment Methods * Payment Unsettled: Cost, Opportunity and Disruption in Travel s Complex Payment Landscape, March

43 VANs (Virtual Account Numbers) Allows TMC to generate a one-time use credit card number that ties back to another credit card or central bill account. Benefits: 1. Control, good for employees that don t need a fulltime corporate card 2. Improved acceptance (some VANs can be generated cross-network) 3. Easy Reconciliation

44 Key Takeaways Look at your current payment landscape understand what you re really doing AND paying payment economics are complex Make the necessary changes Have a payment strategy understand the affects of payment acceptance on your business. Payments need the same scrutiny as GDS fees and travel agency commissions have had Understand channel optimization this goes hand-in-hand with truly understanding what you are paying where (and why) Utilize Alternative Forms of Payment - expand reach, drive incremental sales, leverage to help round out a payment strategy in international markets

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46 Want to know the daily FX rates, from Afghani to Zloty? Want to become a Credit Card Master? Want to save on payment and FX cost? World Financial Symposium 2014 > Visit the IATA Booth to learn more World Financial Symposium 2015 World Financial Symposium 2014