7 - https://airlines.iata.org/news/airlines%E2%80%99-profitability-squeeze-lessens-in-q4
4. A new contender:
The rise of virtual cards
Thai Airways and its agency partner Select Travel are among those trialling a
new approach to virtual cards for B2B payments. Both companies were seeking
a way to lower the overall costs incurred when the agency paid the airline, and
also sought to improve the industry standard on corporate cards, cheques and
bank transfers.
The new solution means that now, when the agency initiates a payment on a Thai
Airways booking, it uses a Thai Airways branded virtual Mastercard card. Covering
the entire payment flow between the airline and the agency, the solution drives
efficiency and reduces costs by up to 70% compared to existing B2B payment
methods. The savings are achieved through improvements in fraud prevention,
chargebacks and cash flow.
The pilot scheme provides all the benefits of existing virtual card solutions for
both parties, including single-use virtual card numbers that improve reconciliation,
reduce the risk of fraud, negate any impact in the event of a supplier default,
as well as helping to foster loyalty for the airline and a revenue stream for
Select Travel.
The pilot acted as another promising model for the use of virtual cards in the
travel industry, helping to strengthen both operational payments capabilities
and business partnerships.
Best Practice:
A Payment Partnership
New payment methods are not
restricted solely to consumer
payments. Virtual cards are likely
to be the most important method
for the coming years. They combine
ease of use and security, making
them a compelling option for the
millions of payments between travel
agencies and airlines that keep the
industry working.
Virtual cards have huge benefits for
both agencies and airlines in terms of
simplicity and security:
P Fast authorisation of payment
within days so that the cash flow
of both agencies and airlines is
improved
P Protection against fraud with
a unique card number for each
transaction, protecting the
merchant of record
P Default protection for the airline
and the agency, protecting either
party from bankruptcy issues in
the other
P Simple reconciliation and
end-to-end payment control with
each transaction automatically
linked to the relevant sale
P Easing compliance - exemption
from the Payment Card
Industry Data Security Standard
rules, with single-use cards being
out of scope
Virtual B2B cards are already widely
used for these reasons. However,
one potential barrier to increased
uptake would be cost. In recent years,
airlines have faced tight margins with
declining base fare yields.
7
Increasingly, then, airlines have
baulked at the fees charged by the
preferred choice of agents, virtual
cards. Understandably, agents have
been reluctant to give up the rebates
available to them through their use
of this payment method.
This can quickly mean the two parties
can come to see each other as
opponents rather than partners.
Amadeus has been involved in an
innovative pilot scheme in Asia that
could diffuse this tension.
It began with a major airline and one
of its key agency partners recognising
that the challenges they faced were
essentially the same.
Both were looking for cost-effective
payments (providing affordable fees
for the airline and revenues for the
agency); fast settlement to help
with cash flows; visibility for easy
reconciliation of payments and better
reporting; as well as protection for fraud
and against bankruptcy of their partner.
The Partner Pay scheme was built on
this common ground. Through this,
the airline and the agency are brought
together to obtain a solution that
works for both of them.
Under the scheme, while agency fees
still have scope for a rebate, virtual
cards cut acceptance rates to the
airline by up to 70%.
At the same time, it delivers all the
existing benefits of virtual cards for
both parties.
The pilot displayed an encouraging
model of the role that virtual
cards can play in the future of
the travel industry.