From Cost to Control: Redefining Airline Payments

Transcript

Edmond Rose:I'm delighted to invite to the stage our panelists, and we're going to be discussing airline payments from cost to control. So first, let me welcome Puk Vornaveldt, who is from the Lufthansa Group. And we have then Mitzi Babery, who is the— She's got a very long title, Chief Legal and Business Development Officer at Kiwi.com. And next we have Marco Simi, who is VP Treasury at Etihad Airways. And finally, we have Matt Williamson, who is an SVP at Endava. And we just had some information about Endava on the screen. So, welcome to you all. So we have 2 airlines and we have a solutions—

Matthew Williamson:Advisory consultancy specialist.

Edmond Rose:All sorts of things. And we also have Kiwi.com, which is a very well-known OTA with some specialisms in virtual interlining and other clever things. So I'm going to open up just to see what your understanding of the level of importance of payment in airline businesses with a quick audience question on Slido. So if you're not yet on Slido, there is the QR code. And here is the question, which I hope it says—

Matthew Williamson:yes. There you go.

Edmond Rose:17% of travelers get a non-acceptance when they try to use their credit card their card, what percentage then say that they would switch to a competitor rather than try and persist or find another payment method? That's 12 of you. That's not quite everybody. Anybody else going to pitch in here?

Marco Simi:Yeah.

Edmond Rose:And it looks like there's a consensus— no, not quite emerging. Any more for any more? Well, the early consensus and the final consensus are right. It's 13%, which shows, I think, the importance of getting payments right so that you don't lose the revenue from from a customer who gets a decline on their credit card. So, um, what we, what we certainly do see is that, um, around the world there are lots of different ways of paying, but for airlines in particular, um, there are lots of pain points. So I think that's my first question really, is what are the current pain points for airlines in Puck.

Puck Voorneveld:Yes, so I would call them challenges because it's fun topics to work on, and I think payment has been overlooked for a long time, especially as a commercial enabler, right? Not just focusing on the cost, which of course is, is a challenge ongoing. We were talking earlier in sessions about fuel burden, etc. You have to make sure your commercial costs are as low as possible, but then really looking at How can we reach a global population for payments, right? So local payment methods, how do you cater for those? Fraud is becoming more and more. Implementation and maintenance cost for different payment types and getting the technology right and everything. Some of those to mention, but I'm sure you have some more to think about.

Marco Simi:Yeah, I mean, to add to that, I think the complexity driven by the geography the diversification of the network. So specific payment methods in the specific geographies, that door is to make the wallet quite complex. So you have to balance complexity versus offering the right tools. For us, payment sits in treasury. We were discussing that. And of course, the cost is a challenge. And probably the customer experience. I'm not looking at the financial piece, but more of the guest experience. You have to have a smooth experience for the customer, and that's not always the case. And acceptance is a big part of that.

Edmond Rose:So I think we can certainly come back and talk a bit about certainly the costs. You mentioned already, Puk, about lots of local payment methods, and then you touched on customer experience. So what about the customer? Where does the customer come into this? Where do they feel the pain? Matt?

Matthew Williamson:I'll say, you're looking at me, so I'm assuming that's coming to me. So I think that the first thing we need to really be very honest about is you need to make it as easy as possible for your prospective customers to spend money. With all the frictions that exist in the various different payment channels, And it's not said with a nefarious tone. You know, obviously if a person is there, they're expecting to complete some sort of payment journey. They want to buy a ticket, holiday, etc. So if you make it as difficult as possible, making them go through various realms of identity security, which are all valid, but there are more simplistic ways of doing that. And I think, you know, this week a study— I was fortunate enough to see a study being released that you guys should be able to hopefully see in the next coming weeks. where it talked about, and this is a really important bit, a disconnect in customer service, payment automation, payment experience between the C-suite and the operational level within the organization. So the C-suite are either saying we're super automated, we're cruising ahead, and then the operational layer are saying, no, no, there's lots of friction points that we want to fix and we're struggling with budget, et cetera. So as an organization, this is about what behaviors do you want to drive, not a payment conversation or a technology conversation. It's what behaviors you want to drive internally as an organization, but externally with your customer base. And then what are you going to do with that information post that point?

Edmond Rose:So you talked there about perhaps at the C-suite level seeing that it's automated and friction-free. But what sort of friction is it that you see that's particularly difficult for customers?

Matthew Williamson:Again, as Marco and Puk said earlier, it's regional-specific. Region-specific. But I think if you look at the adoption of wallets, digital wallets specifically, Apple Pay, which fundamentally is just your existing credit card or debit card embedded in a digital version within a wallet, but the availability to accept is increased exponentially. So to give an example, publicly available data with Stripe is that someone using Apple Pay will generally have a higher acceptance, about 22.8%, I think, percent Increased acceptance, but also around the same amount increased spend as well, because you've made it as easy as possible for someone to complete their payment journey. Because as we know, you know, whenever you're spending money, you're making multiple decisions. I mean, I don't know about anyone in the audience, I'm married, I've got 2 teenage daughters, and making any decision is incredibly challenging because everyone's got an opinion on what we're going to do and where we're going to go. So at any point I can make it as quick as possible and say, it's done, we're booked, this is what's happening. Fantastic. I think that's, that's really the direction that you need to go in. And then there are other methods, you know, buy now pay later has come up more and more. And where does the airline sit within that? Do they take on board the risk of the pay later? Do they partner with a buy now pay later firm whereby, you know, you could offer additional seats, upgrades either to economy to premium economy, premium to business, because you can fund it over 6 to 12 months in advance. And the airline's perspective, they can either take the risk, or if they've worked with a buy now pay later company, they get the money upfront either way. So the risk is not on them, but you've actually enabled your customer to complete it, to, you know, have a better experience. And I think this was raised earlier throughout the day, you know, everyone talks about customer centricity, and if you're honest, it's not really true. You know, when you think about customer care center, I've heard that a lot recently. Do the agents and the people in that customer care center really care? Probably not, because they're, you know, not gonna be paid particularly well. They've got lots of friction points and the processes they have to follow internally. So it's got to be authentic. You know, your, your customer base has to feel that the airline has my best interests at heart. So using that buy now, pay later example, you have got my best interests at heart because you are going to enable me to go on this journey, and you've given me the facility to have a better experience. You've enabled me to, you know, to fund this over 6 months, for example.

Edmond Rose:So, so, um, you're, you're arguing that, uh, the airlines and providers need to make more, um, methods available for payment that are appealing to consumers. But perhaps I could ask, um, the, the 2 airlines how you find that balance between, um, offering methods which are easy for customers and being sure that you're going to get the payment through? You know, are we going to see a one-click solution for customer payments to airlines?

Puck Voorneveld:I think it's a big equation, right? So you have— we talk about it in 3 things. So product experience and data, basically measurement. So talking about the product part where we basically look at reach, fraud, maintenance cost, implementation cost, general running cost. We look at conversion rate. We look at ease of use. All of these things, put them next to each other and see what works and what doesn't, right? And what helps us is being able to implement payment methods in batch, talking about IATA Pay, Wero, some of those things, right, that are all coming up and that are trying to bring those together. Because otherwise, it's really difficult from a global airline perspective to add that small little payment method in the Far East, which is not one of our core markets that we operate in, right? So I think that's where every single day we look into. And then you have— so you have different forms of payment. You have cards, you have now buy now pay later, other payment, split payment innovation, which all have their own goal. Some of the goal of improving the customer experience and therewith, you know, enforcing loyalty. Buy now pay later, as you just mentioned, increasing very much the basket value as well of what customers shop for. Then some of those local payment methods, as just reach because you want to be able to offer something for a local. And looking at what pays off and what doesn't is very difficult. And I think monitoring and looking at the product lifecycle— so is it after an implementation actually working, or do we need to switch something off— are also decisions that we at some point after ramping up a lot of payment methods over the last couple of years will have to take.

Edmond Rose:Yeah, that's, that's quite a thing if you invest in new payment methods and then It doesn't work. But what about methods which really do work? So we talked a bit about wallets, and I think, Mitzi, you had an interesting— something interesting you mentioned to us about Apple Pay and the speed with which it was taken up by your customers at Kiwi.com.

Mitzi Berberi:So within 30 days of implementing Apple Pay, 30% of customers were using Apple Pay to complete their transactions. The uptick was remarkable. It increased basket size and number of bookings as well. To Puk's point, I think this is where also we come in and we provide support to the airlines, where you don't have market dominance, et cetera. You don't want to invest as much locally, then OTAs like Kiwi and others then come here and complement it. We have over 140 different payment providers. That's something that we support as well.

Edmond Rose:Do you find that you have some territories where you are strong, but particular airlines are weak and you see more of those transactions going through you? Or how do you help the airlines that perhaps would be weaker in their distribution in some places?

Mitzi Berberi:I guess it's the adoption of payment methods that they wouldn't necessarily invest in if it's not a key market. That's number one. We were talking about currency acceptances. So not all airlines accept every currency. I know that's breaking up. I know when we spoke— is this on?

Matthew Williamson:There we go.

Mitzi Berberi:When we spoke earlier, we were talking about the advantages of multi-currency and multiple currencies and FX and so forth. But we're not going to go down that path. And so that's how we support them as well. Yeah, those are, I think, the 2 main ones.

Edmond Rose:So, talking about different currencies, different methods, Marco, in Etihad, you serve a very large number of countries. Your home market isn't necessarily your biggest selling market, I don't think, or certainly your home currency isn't your biggest.

Marco Simi:Around 20-30% of that.

Puck Voorneveld:Yeah.

Edmond Rose:So, you have a lot of experience of working with Different currencies, different payment methods. How do you manage all that? And what is your goal in managing that in a complex structure like Etihad's network?

Marco Simi:From a goal perspective, we, we keep it relatively simple. We look at acceptance and we look at cost of sales and fraud. These are the 3 parameters that we apply. I think the challenge, as we grew quite fast in the last 3 years, we grew around 20-30% year on year, a lot of new countries, a lot of new destinations. So you always have to balance what we're seeing. Like, do I open 5 new payment methods in the specific geography? Maybe 4 won't work. I have to pull them back. There's a lot of cost, a lot of activity there. So trying to work with our commercial team, that's key because at the end of the day, you have to work quite closely. To analyze the market and see what we put the experience from payment perspective, they put experience from demand perspective. And you really have to balance where you want to partner, where you want to keep things more in-house. Buy Now Pay Later is an example where, for example, we activated last year Canada and US, and it went extremely well. But it was very much geography-specific. Like, there are other geographies where probably Buy Now Pay Later wouldn't work. So there's a lot of analysis ahead and then a bit of testing. But as we were saying, like pulling out payment methods, it comes at a cost. So you have to do it right the first time.

Edmond Rose:Yeah. So what about experimenting? How much room is there to experiment? Because you say you might implement 5. different payment methods and have to pull out of 4 of them. Is that an affordable experiment?

Marco Simi:No, no, no, absolutely. But we have some room to experiment and we've been learning throughout these last 3 years. We've been partnering with global acquirers. We changed PSS, we were discussing earlier. So of course you start working with global players and then you go local. And the other, I think, big important point in payments is to talk to other airlines. That, of course, there's the competition issue, but at the same time you're facing the same problem. So having bilateral conversation on what you're doing here, what you're doing there, is very important in my opinion.

Edmond Rose:So there is definitely a cost to trying to implement these different solutions. Then there are costs, as you mentioned, there's You know, there's cost of sales, there's acceptance, and there's fraud. How do you potentially guide things or guide customers so that you can minimize the level of fraud through the payment system? That's any of you, I don't know. What do you do to try and guide the customers into the right way?

Puck Voorneveld:Maybe starting with the easiest one, right? I think we all have— we're used now to this 3DS, whatever authorization steps, etc., and really implementing those and following through with them, I think is super important. We specifically also see high fraud rates with cards at the airport or in the air, whether— where you're offline, basically. So those are things where you have to be extremely careful with. And there are certain payment methods that have such a high fraud rate that it doesn't pay off having them in your portfolio anymore. So we basically, we switch them off in that case and make sure we keep others out there.

Matthew Williamson:Yeah, I mean, this comes back to identity, fundamentally digital identity. So back, which sounds like we're beating the same drum again, but back to digital wallets, etc. Generally, there is a lower rate of fraud associated with those and the tokenization in the background that helps with that too. I mean, the thing with fraud is, right, it's always existed since we had cash. You know, the first thing was you had a lockbox and and then something else, and security. So everyone gets more and more sophisticated. It's our job as either, you know, advisors, solution providers, etc., to stay one step ahead and mitigate the volume. But a lot of that, back to the point you were saying earlier, and Marco, was you also need to be experimenting with the new payment methods by having shorter gates. I'm not going to go down the agentic AI route just yet, but in leveraging those things, that's where you can start Play with these things, play with new markets, smaller groups, smaller pilots, and then reel them back in as and when you need to.

Edmond Rose:Yeah, but pilots also come up with the same cost of implementation as a full implementation if you're not careful.

Matthew Williamson:Exactly. It's having the guardrails around it. And I think that's the way that— I'm going to try not to go down a technology route too much, but that's where we need to think about things differently. I think that's the problem. So for full disclosure, so I'm a reformed banker. And we're very, very heavily regulated, crap service a lot of the time, hiding behind regulation and legacy tech and debt, et cetera. I'm probably going to offend a lot of people in the room now, but you'll be okay. I see a lot of parallels with the airlines. There's a lot of legacy technology debt, a lot of distributed siloed data systems as well. That's real. That's existing. The market is moving. The consumer is moving. They expect an exceptional service, low fraud, et cetera. It's on us to make sure we build the guardrails and the parameters to enable this to happen. And tech is moving at such a rate of pace today that you need to have a strong view and experimental mindset in order to start playing with these things. Because ultimately, someone will displace you. So I will wrap up on this. But if you look at banking, you had neobanks, challenger banks, whatever you want to call them, And all the incumbents said it won't work, they'll never last, they won't work. Look at Revolut, 10 years, one of the biggest banks in the world by capital size. These people are here, they're available, they get money. So you just need to be aware. And again, it's going to come back down to, are you customer-centric? Does the customer feel you're on their side? And that is what will generate revenue for you.

Marco Simi:And probably, if I may add, like, the, the data point is actually And the technology, I mean, is coming. If you don't use it already, it's coming. On the fraud, going back to your question, payment is data intense. Like, it's really loaded with data. If you use them right, whether it's on acceptance, on cost, or on fraud, you can do a lot of things. So I think that's the way forward. And I mean, AI is the word that everybody uses. If you organize properly the data, then you can use AI in payments a lot more than in other areas of the company.

Edmond Rose:Provided the data coming in is reliable.

Marco Simi:Yeah.

Edmond Rose:So payment acceptance, I mean, I've got a figure here that it's basically about 2% of airline revenues, and that was from an estimate 4 or 5 years ago. And going much more direct to customers, if we think back a few years, you know, 10, 15 years, there was such a push for direct distribution, and part of the reason was to reduce costs. Do you think that that has turned out to be the case? Because instead of paying agents commissions, perhaps now we're having to pay a lot more in acceptance costs, or is that not true? Do you think it It is— the two have gone hand in glove, direct distribution and lower cost.

Marco Simi:I can start?

Edmond Rose:Yeah, please.

Marco Simi:I think the direct channels are more expensive than the BSP cash, the traditional channel, but they're cheaper probably than when you use credit cards on BSP. So the direct channel is our focus. And it's for this reason, and it's also going back to the data, because you get much more data from the customer. And you can have a better experience for the customer in case they have to rebook or change, refund, et cetera, et cetera. So for us, the focus is to increase the direct channel. Of course, BSP cash is much cheaper and is quite reliable traditionally. But we are trying to move more and more on the direct channel.

Puck Voorneveld:So I'm leading distribution and payment for the Lufthansa Group. So it's basically my 2 hats in one. And I think with the channel shift away from GDS, Adifect, to NDC and basically .com, of course, you see a different Structure in payment costs, right? But we still see the large share of BSP cash is the same, whereas at the same time we were able to save around 30% of our distribution costs since 2019. We have also started to see a turnaround on the payment side because we are investing so much in really looking at what does the customer want, what can we do. Also on the B2B side, by the way, with some where we're much less mature than on the B2C side. But I think with our partners we can also still do more, especially for those, yeah, credit cards, BSP credit card payments that we still need to tackle.

Edmond Rose:Yeah, so it's interesting you mentioning that you want to improve the way that you deal with your B2B side as well. But is the B2B side less of a risk on the payment side than the consumers?

Puck Voorneveld:It's just as much. I mean, depending on where your business comes in from and what your structure is as an airline, I think both are just as important. I mean, and a lot of agencies love BSP cash. A lot of them don't, depending on their structure, depending on their business model, depending on how much cash they want to have available, etc. So yeah, so I think we're looking for alternatives in B2B space that have not yet really been developed in the airline industry, whereas in other B2B invoicing, direct payments, etc., also in B2B are much more likely. But in the airline industry, that's not yet.

Marco Simi:Thank you.

Puck Voorneveld:Really a reality.

Edmond Rose:So looking forward from, from where we are today, we've talked a little about wallets being much more— they have a quick take-up and they are more reliable. Sounds like less fraud, thus lower cost. What else is coming down the track that could change and improve both the acceptances, the customer experience. Do we think there are new technologies or new payment methods which will really take all this further?

Matthew Williamson:I think there's gonna— it's gonna be more initially about the customer. So, you know, I talked to— I've got teenage girls, so I've got a 15-year-old and a 17-year-old, and this— they trust this implicitly. Whatever's on the app, etc., this is their entire— this is communication, this is social, this is travel, this is everything. And I think that's going to be the next stage for everyone is how people spend their money, how they want to, what the journey, the purchasing journey is for them. And that will derive technology because it is going to come down to are you able to service the customer when and where you want to be? And I think, Marco, you mentioned earlier about partners and ecosystems. That's a big part of this as well. How well do you play within the partner ecosystem? You know, do you have a— I'm referencing a bank again, I know, but—

Puck Voorneveld:Yeah.

Matthew Williamson:As an airline, do you have a partnership with a bank whereby you could offer additional services, loyalty points, slightly discounted flights, etc.? Because that demographic of generation male, female, 18 to 25 is now prioritizing experiences over, you know, although they're always on their device and they can't seem to make phone calls anymore, it's all via text, but they do want to go to festivals, events, travel. So you should be targeting them. And how do you take Sounds really nefarious again. How do you take money from them for that? It's going to be via their device. They're not going to log on to a web address via a Mac, et cetera, put in card details, do 3DS, et cetera. They're just going to want to click. One click, tap to pay, and away they go.

Edmond Rose:So that certainly applies for a lot of consumers, particularly in developed countries. What about in emerging markets? What's going to be the way forward? Although in many emerging markets smartphones are very common, perhaps banking systems or usage of cards is lower. What's going to help bring the revenue in in those markets?

Marco Simi:We just announced 12 destinations, new destinations last week, and half of them are in Africa. We're thinking on How to deal with that from payments perspective. Probably initially the biggest step is partnership. Trying to know the market through the people that are already working there. Back to my point earlier, talk to other airlines, what they're doing there, how they're working there. And sorry to stress that again, but data. Like, start experimenting. Experimenting comes at a cost, but it gives you data. And then you can develop the markets based on what you see.

Edmond Rose:What about markets which still use cash or use other forms of electronic payment, like mobile payment methods, for example?

Puck Voorneveld:I think we actually see a shift even in developing markets away from cash to mobile payment. We vary in many countries. We had, for example, buy online, pay offline services, etc., enabled. They don't— those don't really take off. They don't really show in the numbers that they're successful, right? I mean, even as you mentioned, in the African subcontinent, you have all of these mobile— Mopo. Exactly, different, different approaches. And you have to make sure that you're there, otherwise the local population, you can forget about it.

Marco Simi:Yeah.

Matthew Williamson:If you go back 20 years to Kenya, for example, and they launched the M-Pesa payment system.

Marco Simi:Exactly.

Matthew Williamson:That was just text messaging back. It was cash initially going to a shop and putting it in, but then that's digitized. And back to Marco's point, fundamentally all payments are is a message. It's data fundamentally, and an agreement, you know, I owe you, I'll pay this. And a lot of the time money doesn't really move either. It's netting between various big conglomerates. So I think the the ability to ingest data to a point, interpret, and offer services on top of that, that's going to be where you will be able to more safely, more cost-effectively experiment. But the reality is things move so fast now that you have to be agile, which is an awful phrase and a corporate phrase, but you've got to be as agile as possible while having guardrails around you because someone will come along and spin up— it's not unfeasible someone will spin up a new airline offering everything to everyone. Yes, there'll be mistakes along the way, but they won't be encumbered the same way a traditional airline will, and suddenly they'll gain market share because they're appealing to a certain demographic that they go after. Yeah.

Edmond Rose:Mitzi, any particular ways that Kiwi looks— Kiwi.com looks forward to expanding its presence and its market share? Does payment figure very much in that to make sure that you're getting the payments in?

Mitzi Berberi:I think we've all touched on the main point, which is making it as easy as possible for customers to convert from an interest to a booking. That's the main thing. We see many jurisdictions. One of the things I was looking at a little bit earlier was how often or how long will a failed transaction be reattempted over and over again. And the anecdotal evidence was that in Brazil, actually, we had up to 15 attempts of a failed transaction.

Marco Simi:Wow.

Mitzi Berberi:So I think that's something that we focus on to make sure that obviously outside of fraud, transactions go through and bookings are confirmed. The other thing also that I think we need to focus on is not just making it as easy as possible, but also finding a payment method that customers and consumers trust. I think that's the other element of it that we need to focus on. And that's probably why the adoption of Apple Pay and wallets has been so high. One is the convenience factor. You have it in your pocket. 2, it takes away the friction of having to pull out your credit card, enter the details, et cetera, and the fear also of having all of that data spread around multiple airlines or multiple businesses. So I think that that is an additional consideration of how do we find a payment method that's easy, but it's also trusted by the customer. Yeah.

Edmond Rose:So perhaps final word to the 2 airlines, Marco and Puk. Are you very happy with digital wallet solutions like Apple Pay? Does that make your life easier and better, and is it a good, good payment method for you?

Puck Voorneveld:I think they're one way to get there. And as I was saying earlier, so you have the product innovation that's happening, then you have the experience, and that's where we are. So we've added a lot of products in our— on our payment page on the, on the dot-com. Now we're at the stage where we say, okay, let's see how we can improve the experience for each of those methods, and how can we push one method over the other? A/B testing, which we've always been doing on our entire .com, but due to all compliance and issues, it's very difficult on a payment page. But we're getting more active there, and I think that's where we will see, next to the product impact, right, that we are already feeling the real push now in the next couple of years.

Marco Simi:Yeah, I agree. And yeah, the wallet has been a big, big push to improve the payments. I think one point that I want to highlight maybe from treasury perspective, I think certain methods like wallets, like Apple Pay, and they help also the working capital compared to a BSP product, for example, where the settlements are 7, 15, 20 days. All these wallet products, credit cards, Apple Pay, Google Pay, they're T+1, T+2, you get your cash. There's a huge advantage as well.

Edmond Rose:That's good. Thank you. Well, thank you very much to the panel.

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