Worldpay Alternative Payments for Airlines Two

Alternative Payment and Distribution Landscape: Airlines and Alternative Payments - The Facts www.worldpay.com www.worldpay.com 1 About this whitepaper WorldPay, a global leader in airline payments and settlements, has created the Alternative Payment and Distribution Landscape: Airlines and Alternatives – The Facts whitepaper exploring the results of a research study of 56 global airline carriers looking at the motivations, trends and future plans for offering alternative payments. This whitepaper comes after part one in this whitepaper series that looked at the developments in alternative payment solutions specifc to the airline industry, and the challenges currently facing carriers. A third whitepaper will bring together the results of research on 42 airline carriers identifying their current challenges and trends facing carriers in developing distribution channels. Methodology WorldPay carried out a global online survey among industry professionals from 56 airline carriers from low cost to traditional. The sample consisted of contacts held by Airline Information, an established leader in commercial aviation conferences. The research was conducted between May and July of 2013. www.worldpay.com www.worldpay.com 3 WorldPay offers airlines a full payment service and risk management solution across all global distribution channels. Providing payment coverage in 181 countries, WorldPay helps airlines connect globally, supporting the widest choice of payment types and currencies achieved from a single integration. WorldPay manages payments for 70 airlines globally including some of the world’s largest aviation brands. Mike Parkinson, VP Airlines, WorldPay Mike Parkinson is the Vice President of the Airline Sector at WorldPay. Mike joined WorldPay in 2000, and has held various senior positions including Head of Partnerships, and Head of Global Corporate Sales. More recently, Mike has been responsible for looking after the Airline Sector, where WorldPay has an established portfolio of payment processing, fraud and settlement services. About WorldPay www.worldpay.com www.worldpay.com 5 In part one of this whitepaper series, we explored the developments in alternative payment solutions specific to the airline industry, which has a number of unique characteristics. By the very nature of what airlines do, the sector must operate on a global scale, whilst considering local factors including the prioritisation of distribution channels. From the availability of smartphones and hence the access to mobile payment methods to local infrastructure considerations, each region has a number of unique challenges. Globally payment preferences vary hugely ranging from real-time bank transfers to offine credit transfers; from direct debits and e-wallet payments to paper- based systems and payments by mobile applications. It is estimated there are more than 230 methods of payment available around the world. Yet the airline industry still heavily relies upon credit cards as the primary payment method. One of the main factors for this is the complexity and cost associated with implementing alternative forms of payment. As a result, airlines need to work with a provider of payment services that understands those challenges and is prepared to design specifc solutions for this industry with reliable service levels. With a fast-moving landscape, airlines are increasingly looking to implement locally preferred systems of payment, which in turn will drive the development of solutions. In order to be truly global, airlines need to respond to local requirements to be able to maximise their revenue potential and to serve their customers and win new customers. Introduction www.worldpay.com www.worldpay.com 7 Contents About this whitepaper 01 About WorldPay 03 Introduction 05 The alternative payment landscape now 09 Drivers for growth 10 Motivations for offering different payment types 13 Optimising revenue 15 Benefits of offering alternative payments 16 The challenges of offering alternative payments 18 The future 21 Conclusion 23 www.worldpay.com www.worldpay.com 9 Credit cards, charge cards, debit cards and air miles/loyalty points remain the top payment methods accepted in the airline industry. However, a shift has taken place since last year. In 2012 WorldPay conducted research of 51 airlines to create the Perfect Passenger Payments report. In comparison to the research in 2013 traditional payment methods have slipped, with alternative methods gaining ground. Whilst the acceptance of credit cards remains the primary payment method, the use of credit cards declined by 4% between 2012 and 2013. Debit cards also lost some ground, with 64% now accepting them as a form of payment compared to 67% last year. Offine bank transfer usage also appears to be on the decline: last year, 25% of respondents accepted them; this year that’s down to 8%. Direct debits and cash vouchers declined, too. So what gained ground this year? Mobile made a signifcant leap and is up 150%, with 25% of respondents this year saying they accepted mobile payments, an increase from just 10% last year. E-wallet payments also gained acceptance: up from 33% last year to 38% this year. Prepaid cards were also accepted by more respondents this year – 13% now, up from 8% in 2012. Air miles and loyalty points grew in popularity: this year 54% of respondents said they accept them, up from 45% last year. The alternative payment landscape now Air miles / loyalty points / FFP Alternative payment method acceptance: 2012 45% 33% 10% 54% 38% 25% 2013 E-wallets 2012 2013 Mobile payment 2012 2013 www.worldpay.com 11 www.worldpay.com 10 Airlines need to consider where the demand for using alternative payment methods is coming from, and focus their efforts accordingly. There are a number of key markets which require an alternative payment strategy. Germany, with its well-developed e-commerce system in place, is a global leader in alternative payment adoption with alternatives making up 66% of a total e-commerce value of €45 billion. 14% of respondents say this market is driving demand for alternative payment method implementation. China is also driving demand for alternative payments – 8% of respondents report that this is the country driving greatest demand. With a population of 1.35 billion and a growing middle class that is increasingly accustomed to foreign travel, the Chinese are fast becoming the world’s biggest spenders on international tourism. The Netherlands and the UK come next, forming the largest pockets of demand for 6% of respondents. Perhaps unexpectedly, Russia, despite having a varied landscape when it comes to payment methods, was cited by just 3% of respondents as driving the demand to provide alternatives to credit and debit card, although just 1% of respondents said Russia was their largest market. Traditional payment mechanisms continue to be popular in more mature markets, but other regions - such as the BRICS nations - are seeing strong growth in alternative payments creating demand for a more diverse payment portfolio. Airlines need to consider specifc factors such as payment method preference, device penetration and country telecommunication infrastructure when looking to implement an alternative payment strategy. Drivers for growth Germany 14% China 8% Netherlands 6% UK 6% Brazil 5% Holland 5% India 5% Mexico 3% Russia 3% Argentina 2% Bahrain 2% Canada 2% Finland 2% France 2% Hong Kong 2% Italy 2% Phillippines 2% Singapore 2% Spain 2% Countries driving demand for alternative payment methods www.worldpay.com www.worldpay.com 13 6 1 % What are the reasons for using alternative payment methods? The key reason cited is to meet the demand of customers by offering them a choice: 89% of respondents said this was the most important reason. However, alternative payment methods can also reduce costs and thus increase revenue, according to 64% and 59% of respondents respectively. The global nature of airlines is fagged up by 23% who said that ftting in with cross-border expansion plans was a reason they were offering alternative payments, while 41% cited keeping up with competitors. Importantly, the acceptance of alternative payment methods is also a key differentiator between airlines, say 61%. Motivations for offering different payment types To ft in with cross-border expansion plans 23% To keep up with competitors /other airlines 41% To increase revenue 59% To reduce costs 64% To meet customer demand / ofer choice 89% 61% agree that the acceptance of alternative payment methods are a major differentiator between airlines Motivations for offering alternative payment methods www.worldpay.com www.worldpay.com 15 A key theme that emerges from the survey is the growth in mobile usage and the potential it offers airlines. 57% said that mobile is the method that has the greatest potential to drive revenue over the next two years. In second place, e-wallets are seen as having the potential to drive revenues by 48% of respondents, with the debit card in third place, cited by 43%. Interestingly, 20% see frequent fyer points as a driver of revenue growth, coming behind charge cards (30%) and online bank transfers (36%). Prepaid cards have yet to take off: just 13% said they were likely to drive revenues, while direct debits, cash vouchers and offine bank transfers occupied the bottom three slots. It is clear with the growing trend of direct sales for carriers that managing direct customer interaction and payments together will become a priority in the future: 32% of respondents said they plan to accept mobile payments in the next two years. Optimising revenue Frequent fyer points 20% Charge card 30% Prepaid card 13% Bank transfer online 36% Debit card 43% E-wallet 48% Mobile payment 57% Credit card 57% The payment methods that have the greatest potential to drive airline revenue in the next two years www.worldpay.com www.worldpay.com 17 16 Airlines are very aware that a choice of payment methods can help drive business. Not only do they acknowledge that alternative payment methods can help them reach new customers (63%), they also point to lower processing fees (61%) and a lower fraud rate (50%). Additionally, a wide choice of payment methods can help airlines differentiate themselves to potential customers and also help drive customer loyalty, said 39% and 38% respectively. A key challenge for airlines is the abandonment of bookings during the purchasing process due to customers not being able to use their preferred payment method, or because their card is declined. Not surprisingly, 34% of airlines said reducing booking abandonment is a beneft of offering alternative methods of payment. Other benefts include a higher conversion rate, according to 21% of the respondents, and improved process automation (20%) as well as a higher transaction value (11%). Winning and pleasing customers is a key motivator for airlines: when asked what reasons they give for offering alternative methods of payment, a big majority – 89% – said they would do so to meet customer demand. Reducing costs for the carriers is also important, with more than half (64%) citing that as a reason. Given the benefts to carriers of offering a range of payment choices, it is unsurprising to fnd that many pass on those benefts to their customers in the form of incentives: 39% of carriers who responded to the survey said they use incentives, which is signifcantly up from last year, when only 22% offered incentives. Of those incentives, 86% of respondents offer discounts to customers – that’s up signifcantly from 2012, when only 55% said they offered discounts. Benefits of offering alternative payments 6 1 % 6 3 % 50% Ability to reach new customer segments Competitive differentiation Higher conversions Lower payment processing fees Customer loyalty Improves process automation Lower fraud rates Lower shopping cart abandonment Increase in average order value 3 9 % 21% 20% 1 1 % 3 8 % 3 4 % Benefits of offering alternative payment methods www.worldpay.com 19 www.worldpay.com 18 The survey also highlights that alternative payments raise challenges for airlines too. One of the key issues of adding further methods of payment is integrating those into current systems: 73% of airlines cited this as a challenge. The cost of implementation (39%), fraud risk (32%) and lack of knowledge/ resources (32%) are secondary barriers. Despite these issues, gaining internal consensus to offer a choice of alternative payments is only seen as a challenge by 7% of those surveyed. This perhaps indicates that for most airlines the upsides of creating an optimal payment mix far outweigh the challenges of implementation. However, further education is still needed with 18% of respondents saying that the benefts of offering different payment methods are unclear. With mobile payments set to take such a central role, another issue for airlines is security and the risk of fraud across existing and new channels. The challenges of offering alternative payments Lack of integration with current systems and processes Selling in to the business internally Fraud risk Cost of implementation Lack of knowledge / resources 73% 7% 32% 39% 32% The challenges of offering alternative payment methods www.worldpay.com www.worldpay.com 21 In the future, airlines have a defined strategy for the types of payment methods they plan to offer. A third (32%) of those surveyed said they plan to accept mobile payments within the next two years, whilst 29% are planning to offer e-wallets and 25% said they plan to accept prepaid cards as a form of payment. Only 11% plan to offer Air miles or loyalty points and 9% cash vouchers. E-wallets and mobile are the primary payment methods of choice under consideration and furthermore, we are starting to see some carriers working on their own methods of payment. The future 32% Plan to accept mobile payments within two years Mobile payment 32% E-wallet 29% Bank transfer online 29% Prepaid card 25% Debit card 20% Direct debit 18% Bank transfer ofine 14% Air miles / loyalty points 11% Cash voucher 9% Charge card 7% Planned payment types in the next 2 years www.worldpay.com 23 www.worldpay.com Customer demand and offering choice are the two biggest drivers for offering alternative payment methods. While customers in more traditional markets are still happy to use credit cards, emerging economies are driving the need for a more diverse payment portfolio, in particular e-wallets and mobile. Airlines recognise that this will be a major driver of revenue but also that it offers a commercial differentiator. As carriers’ margins are increasingly squeezed, looking for new ways to drive revenue is imperative. This is why airlines are also looking at developing their own payment methods. Mobile is clearly an area for growth and again consumer appetite is playing a key role here. Airlines are already aware of both the need to develop services and solutions and the potential revenue opportunities if they do so, which in turn spurs payment providers to respond with specifc innovations. Offering the option to pay through mobile phones also means airlines can reach and satisfy their customers directly, but as with all the developing payment and services methods available, the main challenge can be integrating new systems into their existing infrastructure. Alternative payment providers need to adapt to mobile frst so that they can better serve the industry. Conclusion Contact us www.worldpay.com www.worldpay.com Phone internationally: +44 (0)1268 500 615 www.worldpay.com/airlines This document is proprietary to WorldPay. The information provided herein is provided on an “as-is” basis for information purposes only, and WorldPay makes no warranties of any kind in relation to the content or suitability. Terms and conditions apply to all our services. WorldPay (UK) Limited is a company registered in England number 07316500. Registered offce: 55 Mansell Street, London, E1 8AN. WorldPay (UK) Limited is authorised and regulated by the Financial Conduct Authority under the Payment Services Regulations 2009 (Register No. 530923) for the provision of payment services. www.worldpay.com © Copyright 2013 WorldPay. All rights reserved. For more information please contact: Phone internationally: +44 (0)1268 500 615