When it comes to credit cards, businesses have a love/hate relationship with them, on the receiving end. By allowing customers to use credit cards to make purchases, it makes the process easier and typically means the business can sell more because the customer is not having to use whatever cash is on hand.
In exchange for that convenience, the business has to pay an interchange fee of 1-3% to the credit card companies – and that is something that Emirates is trying to avoid in a new way.
New Emirates Payment System
The New IATA Pay is Coming to Emirates
I first wrote about this three years ago as Deutsche Bank was just trying to get traction with their new method of payment transactions for airlines. The IATA brought this to Deutsche Bank to help airlines avoid the credit card processing fees that IATA says cost airlines up to $8 billion per year, globally.
This was supposed to originally launch at the end of 2018 with interested parties including Lufthansa. But, the first airline on board with the IATA Pay (Emirates is launching it as Emirates Pay) is Emirates. Emirates is likely on the 1% range of the credit card processing end and even with IATA Pay charging a fixed fee of a few cents per transaction, Emirates will be making out big with this switch.
But, it will not be easy nor will it be accepted by all. The method of payment would use real-time payment methods to transfer the money from the customer’s bank account to the airline. Emirates currently has between 60-70 percent of their tickets sold using credit cards and there is no way to know yet how much this new Emirates Pay would bring that down.
New Perks to Incentivize Customers?
To try and encourage customers to use the new Emirates Pay, Emirates says that they may eventually try to incentivize customers to use it with things like free upgrades to economy seats with extra legroom, even cheaper tickets, extra luggage allowance – for starters.
But, before you start thinking about getting things like business class upgrades or huge drops in economy fares by using this new method, let’s look at the math. Say you are purchasing a $1,000 economy ticket. Emirates would be paying – at the most – $30 on credit card processing fees for that ticket. Is it really worth it to them to offer you a $100 discount on a ticket to save $30? Sure, there is value in cutting out the payment middle man but how much of a value?
Better Than a Credit Card Purchase?
For the consumer, consider what you are giving up. If you were to purchase that ticket with a credit card that offered even 3X points on travel (like the Chase Sapphire Reserve), you would be earning 3,000 points which would be worth at least $45 on future travel redemptions. Will you give that up to get an extra bag on your journey?
Let’s go even further. If you do not use your favorite travel credit card, you won’t have access to things like trip insurance, delay coverage, baggage coverage, trip interruption, etc. When things go right, we don’t think about it but when a covered trip goes wrong, getting that extra free bag is not going to be worth it in exchange for what you could have gotten to help reimburse you for those unexpected expenses.
Bottom Line
But, this is an American speaking. We have credit cards that offer us perks, points, and benefits that many customers around the world do not enjoy, specially customers in Europe. For them, using payment systems like this is already something they widely use so it would not be a huge break from normal payment methods to adopt the new Emirates Pay.
We shall see but I do not think that US customers of Emirates will be quick to jump on board with the new Emirates Pay unless they make those perks really attractive – and would that even make financial sense for them to do this?
Source: FT
