There is no question that the credit card game is lucrative for issuers. With fees to the consumer and fees to the retailer, they are in great positions to rack up huge profits.
New Payment System Rolling Out for Airlines to Battle Credit Card Fees
How It Would Work
Outside of the US, it appears that the large Deutsche bank and airlines will be rolling out a system by the end of this year that seeks to cut down on the fees that airlines pay to credit card issuers. This new system will use new technology and laws in Europe to take a customer’s bank account information and then instantly transfer the necessary funds from the ticket to the airline’s institution.
This will be done without using cards and just the bank account info. In this way, these airlines could get around the 1-3% fees that they are paying for credit card transactions now. According to this Financial Times article, this adds up to billions of euros in a year for the airlines.
This new system (currently nameless) is being developed by Deutsche Bank and IATA (International Air Transport Association) and will charge a fixed fee which will be much less than what the credit card companies charge. According to the article, Lufthansa is very interested in this approach and the new platform is working with other large European airlines as well. The plan is to roll it out by the end of this year.
What About Credit Card Rewards?
For those of us in the US or with credit cards that reward travel purchases with nice bonuses, this doesn’t sound like something that is of interest to us, right? Actually, the plan would be to offer bonus airline miles or a discount if passengers paid with this new payment system.
The problem is that there is no way they are going to give the end-user the full 3% they would be saving. So, let’s say they offer a 1.5% discount on the ticket if the passenger pays with their bank account. On a $400 ticket, that would mean a discount of $6. If you were to use your Chase Sapphire Reserve, you would get 3 Ultimate Reward points per dollar that represent a minimum of a 3% discount and would also work out to 4.5% in return if you use the points directly for travel through Chase.
To me, I don’t see how the airlines could ever compete with US card offerings. But, they could make it attractive for Europeans. Until recently, many European airlines (and maybe some may still do this?) would actually charge the customer the credit card transaction fee. Over the last couple of years, they have been taking that on so they are definitely motivated to save that money again.
HT: Financial Times