Payment methods and the airport customer journey 

Two key payment trends, say experts, are providing airlines with new tools to accelerate growth – multi-currency processing and alternative payment methods. By tapping into these payment innovations, airlines can optimise conversion, tap into new markets, and reclaim lost margin.

McKinsey, the global strategy firm states that airline retailing — essentially selling new products in new ways, either directly to customers or via intermediaries — could be worth $40 billion by 2030. Also payments, as a critical link between airlines and their customers, are a vital component of retailing. But if airlines are to realise the full value of retail, it is imperative that they get payments right, McKinsey stresses.

Every year, McKinsey reports, approximately 2.9 billion airline booking payment transactions take place across the world — valued at around $1 trillion. However, though these payments represent valuable business transactions, they come with a price. It further states that, the airline industry spends over $20 billion a year on payment costs. This amounts to around 3 percent of airlines’ total revenue, and approximately 78 percent of the industry’s net profit. Payments also incur substantial short-term financing costs — $2 billion worth in 2019, representing 9 percent of airlines’ total payment costs, experts say.

The evolution of payment systems within the airline industry has been through a series of transformations, driven by the need to enhance customer experience and streamline operations. At the onset, payments were primarily made through cash and checks, which were later replaced by credit and debit cards. This shift allowed for more secure and efficient transactions. Then came the internet, so airlines began offering online booking and payment options. This not only made the process more convenient for customers but also reduced operational costs for airlines.

The GSM revolution in places like Nigeria has given rise to the era of smartphones bringing about mobile payment solutions. Airlines have, as a result, developed apps that allow customers to book and pay for flights directly from their mobile devices, enhancing convenience and accessibility. To cater to a global customer base, airlines started accepting various alternative payment methods such as PayPal, Alipay, and other digital wallets. This diversification helped airlines tap into new markets and improve conversion rates on the back of improved customer experience. This is driven by the dual engines of innovative technology and evolving consumer needs for more flexibility and convenience in booking air travel.

Expert opinion is that air travellers in this era are increasingly seeking the ease and immediacy of e-commerce experiences when booking flights. In a bid to meet these expectations, airlines and travel-tech providers are eagerly innovating to deliver smooth, seamless, and flexible payment experiences. 

Airlines, which have very complex systems and face lots of legislation, in looking at payment capabilities, will want to reduce the burden on them from a cost perspective as well as complexities related to various payment channels. The human resource challenge in the industry is such that they will have to do more with the limited hands they have. They will, where they are either regional or global players, have multi-acquirer setups, sophisticated and complex products, and need for back-office improvements. Servicing customers, either in different parts of a particular region or globally, requires a lot of adaptation to local needs and desires, so they need to serve a lot of different payment methods. They also need to reconcile various payment transactions coming in, as well as increase the acceptance rate for payments.

McKinsey states further that despite the significant upside, its associated cost, and its general importance in the customer journey, the area of payments as a strategic topic has often been unaddressed by the industry. It further states that generally, there is little transparency or engagement with the topic, and many airlines do not strategically monitor payment and transaction data, and there is an absence of defined roles or KPIs in the area. Furthermore, says the global strategy firm, many airlines have yet to leverage the link between payments and customer experience; these are often viewed as separate concerns. But payments are an important element of the customer journey — each touch point presents an opportunity to capture additional revenue, it says.

Since there are expert opinions that point to the fact that there are a lot of people who prefer to pay with alternative forms of payment, alternatives like Buy Now Pay Later (BNPL) and similar types of financial instruments are essential in the ability of airlines to meet customer needs. In difficult macroeconomic terrains, some of these alternatives could go a long way in improving revenue and load factors. 

Some other payment methods like split payment, where a traveller can pay with more than one card, are also essential, say experts. In addition airlines need options that are adapted to a particular market, because it’s not the same alternative forms of payment everywhere. This is not only for airlines, but these payment alternatives can be collaboratively explored by the airport community with an eye on improving the passenger experience.

Payment methods can unlock revenue opportunities, mainly from retail travellers. The airport community needs to explore the opportunities that exist to improve generally the airport payment experience, but also particularly for airlines to improve the retail customer payment experience, particularly in direct channels, to reduce dropouts. This customer experience improvement should not be overlooked.

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