Ai Editorial: NDC and Payments

NDC is fine, but are airlines ready to offer a better payment experience?

Ai Editorial: One transaction for a trip, but having separate payment record of each trip element involving a different supplier isn’t an ideal story. Are airlines ready to handle this, especially in the context of traditional card payments, in the NDC era? Ritesh Gupta finds out

The objective of being in control of what a carrier intends to sell sounds like a pragmatic idea. As data-driven personalisation becomes the norm, every airline understandably would like to offer its differentiated, unique product and at the same time something that matches the intent of the traveller, too. Also, airlines have been considering the possibility of making personalised offers to agencies without them being prepared by an intermediary by following the NDC standard.

Payments landscape – dealing with inevitable complexity

There are several dimensions that need to be considered as airlines move toward selling products in a different way. One of the most complicated aspects that need to be addressed is the authorization and settlement of a transaction. Considering the complex payments landscape, it isn’t going to be a straightforward process to optimize the payment experience.

It’s true that the scenario where a traveller shops trip essentials (such as airline seat, car rental, insurance etc.) on one site and pays multiple merchants in a single checkout session isn’t new. 

There are certain aspects of travel that are being streamlined. As it recently emerged, IATA’s One Order industry-led initiative is “intended to modernize the multiple and rigid booking, ticketing, delivery and accounting methods with a single, flexible order management process”. According to the association, accounting “will be based upon workflow of a single order, bringing the industry closer to standard retail accounting principles”.

As for the passenger, the plan is to simplify the experience as travelers will no longer need to juggle between different reference numbers and documents. All they will need is their order reference number to be easily recognized and served by all. 

This ideal cart checkout scenario will create complexity for an airline which must now accept the liability associated with the delivery of the various services being bought. Travellers will appreciate the single cart experience but they will also expect the airline, as the merchant of record for the sale, to service their complaints when a service is not delivered as expected. This is where there is room for improvement, says Global Collect's Laurie Gablehouse, a travel payments specialist. 

Payment experience – far from being optimized

Let’s imagine a situation. Say you have shopped for US$1500 for your next trip. You have paid $1000 for your air ticket and $500 for your hotel stay. You completed shopping on an airline website at one go. As it turns out, the details of these two components would need to be tracked separately, with separate bills at your disposal.

Why so?

It’s just the way the world of merchants, acquirers, issuing banks and card schemes work.

A lot happens when our card details are used for a transaction. Several stakeholders come into play as our transaction is converted into an invoice. As it stands, without these stakeholders, a transaction can’t be done.  So imagine a scenario where each travel supplier has its own acquirer, and how the world of authorization and billing eventually shapes up today!

“Yes, the liability for the order is why the payment process works in this way.” says Gablehouse, referring to the current scenario.

Considering that there are two parts to a transaction – authorization, and clearing and settlement, where can the situation be improved?

Gablehouse states that it isn’t a technology issue; it’s just the functioning of this sector that is hard to fiddle with. A bank expects the merchant who accepts the payment to be the responsible party for the collection of the funds. If the consumer decides to reverse the payment AFTER the services have been delivered then the merchant is left with the loss. If this was not a service the airline was responsible for delivering, then there must a legal means of recourse to be reimbursed by the third party provider.

Authorization commences when travellers presents their respective cards to the merchant for shopping. In a matter of few seconds, checks pertaining to fraud and credit line are supposedly done, and a decision is taken. Post this there is a contractual obligation pertaining to payment and a product/ service being bought. So where can changes takes place in order to sort the issue of a traveller receiving one payment detail?

Interchange is the clearing and settlement mechanism that transfers data between the card processor and the issuing bank.  There is an opportunity for card schemes to help the industry, improving the situation at the back-end, says Gablehouse. The back-end requirements are where this single order ides is quite fragmented, she says.

Here the situation is expected to be better in case of alternative form of payments such as digital wallets.

The idea of having one generic merchant id

The scenario can evolve by working with card schemes and identifying means for the airline or merchant if they could authorize $1500 as a total and not as $1000and $500. They are being billed separately as we don’t have the standards to allow for the single authorization for two different merchants. In order to settle $1500 settle at one go, authorization needs to be a single, bundled amount, says Gablehouse.

Hypothetically, Gablehouse says a single generic merchant id could be used to obtain the authorization for the entire sale. This is not something that the card schemes and banks should consider as a means to facilitate the process. This would also require changes to the settlement to ensure that the individual merchant ids could be used for settlement. In the ideal scenario, there should be multiple acquirers which eventually see the settlement file containing all components of shopping when a card scheme processes the billing. This would in turn simplify our payment experience if we were to book more than an air ticket with multiples services from an airline.