Payments Modernisation: From the Basement to the Boardroom

Transcript

Alicia Lines:We've been hearing a lot about safety operations, about eVTOLs, but we're gonna kind of take it down to a niche or a smaller part of the business, but not not an unimportant one, although I think it's probably one of the first times we're gonna talk about payments in one of these conferences. And before I invite my fellow speakers, my name is Alicia Lines. I work for IATA. I'm based in the Miami office. Obviously, I work in the settlement and financial services area for the BSPs, the CASs, ICH, ICCS, all the services related to moving the money around, the cash flow. And this is something that is also being pushed by technology and by the changing consumer needs. So let me invite my fellow speakers, Matthew Williamson from Endava and Stephen Johnson from American Airlines. Gentlemen.

Matt Williamson:Thank you very much.

Alicia Lines:Thank you for joining me.

Matt Williamson:Thank you.

Alicia Lines:So both Stephen and Matt have very interesting backgrounds, so I, I'll allow you to decide from your vast background how you want to present yourself today to, to the group over here.

Matt Williamson:Okay, thank you very much. Good afternoon, everyone. So I guess my background is quite eclectic. I'm a classic— I'll use an Americanism— high school dropout. So I failed school spectacularly. Is the only way to define it. And I spent a lot of time moving around various different roles, logistics, etc. And I actually ended up in traveler's check fraud, which is when my first foray into travel came in with Thomas Cook back in the mid-1990s. And from there, I've always been involved in payments. I've run consultancies. I created several fintechs. I was head of payments basically for Citibank globally, both on the card side and real-time, etc. More recently, I've become Senior Vice President and Industry Principal at Endava, which was originally Originally an IT services company, and we now actually work more in the consultancy area, a bit like a Bain or McKinsey. But actually, as well as having the blue-sky thinking, we then translate that into this is how you achieve it, and we can help people achieve those dreams. But I'm very interested in this conversation this afternoon. As you said, Alicia, it's, it's new for CAPA and the payments— sorry, and the airline industry to start talking about payments. But looking forward to the conversation. Over to you, Stephen.

Stephen Johnson:Thanks, Matt. I'm Steve Johnson. I'm the Vice Chair and Chief Strategy Officer at American Airlines. I'm another of the recovering lawyers here this week. I've been in the airline industry for a little bit more than 30 years, around the industry for longer than that and longer than I care to mention. I've gotten to do a lot of things. I now have a job that is A little hard to define, but it gives me a lot of time to think about the future of the industry and particularly the future of technology as it's applied to the industry. So I've really had a great time here this week, and I'm happy to be here today. I'm not a payments expert like Alicia and Matt, but I do spend a lot of time thinking about how we get paid and how we pay our bills at American. I had the privilege of leading the deal that American announced last year with Citibank to reimagine the way our co-brand and loyalty program works. So I'm very happy to be here today and excited about this conversation.

Alicia Lines:Thank you. Thank you, Stephen. So I think Stephen already mentioned something that is the reason why we're going to speak about payments today, and it's that at his level, I don't think before payments was really something you would talk or think too much about, I think. Cash and credit for the last 40 years over the architecture that this industry has built have been the options. Here in the US, a market that is highly driven by credit card payments for aviation in particular, and the rest of the world may be a little bit different. We might touch up on that later on this conversation, But since COVID I think the pandemic kind of accelerated digital transformation of many of the industries. It transformed us as consumers to become more digitally savvy, more confident of using our phones or our laptops or whatever device you were using to be able to acquire goods because we were just, you know, not able to go out and do it ourselves. Although the airline industry was doing it since the inception of, of the internet, we didn't think too much about everything in the background. We were just thinking more as to how can we reach that consumer. But now, as we saw ourselves in the pandemic, we had to rethink because the consumer wants to have that control, that decision-making of what, how, And how they're going to pay for this, and we need to enable channels to be able to do it. So I'm going to take a cue from Ken yesterday because I simply cannot see any of you, and I'm going to walk down, walk around, engage a bit, invite you to ask questions at any time. Both Stephen and Matt are okay with that?

Matt Williamson:Yes.

Alicia Lines:We've agreed that's something that we would like to do. So I'm gonna come down and in the meantime ask first question, and I'll go out to Matt. I hope I don't fall. That would be funny, huh? First question to Matt. Matt, you provide services to many industries, not just aviation. How do we compare in our ability to be able to adapt and change to the new technologies and the new consumer? behaviors and needs?

Matt Williamson:So it's an interesting question, and I think often when we talk about new technology, that's the sole focus. It becomes how do we adopt this technology and why, rather than being a broader strategy as to how does this meet with our business goals, needs, etc. So from a payments strategy and technology strategy, it's actually, you know, how are you servicing your consumer, whether it's corporate or individual, and are you where they, they need to be? So if we look at the banks 10 to 15 years ago, they would say We have payments sorted. We do payments, you know, with the incumbent. This is what we do. But companies that you will have heard of like Stripe, Square, others have suddenly become, you know, multi-billion dollar companies fixing something that was already fixed according to the banks. So I think we have to be very honest with ourselves and look at can we meet the customers where they are? Because as we've seen since I'm turning 50 this year, so a lot's happened in my 50 years. I remember when cash was king. And then we moved on to cards. Credit card had been around for a long time, but it was more older people that had access to them. Debit cards, especially UK, Europe. And now we're seeing digital wallets. You know, the Genius Act has come out, which is talking about stablecoins, Bitcoins. And generationally, different generations have different requirements. So my kids, you know, I think I've got it in my pocket here. My kids trust this. They don't trust necessarily the bank that's with it. It's the app within the device. So if you can't service that requirement and make it frictionless, as frictionless and easy as possible, then they lose interest. And they're gonna become the power spenders of the future in the next 10 to 15 years.

Alicia Lines:Yeah, totally agree. Different generations have different feels and perceptions of what they feel comfortable, and the newer generations just don't know anything different, right?

Stephen Johnson:Correct.

Alicia Lines:What is, Steve, what is American looking at when we see all these changes?

Stephen Johnson:Well, we are very focused on our customers, how our customers want to engage with us, and importantly, as Matt mentioned, how that's changing as we move through this generation. I mean, we had a— have a system that works incredibly well with respect to payments to American Airlines, and we— but we've always had trouble, you know, finding a way to make more efficient our payments So we spend a lot of time thinking about that and looking at new technologies and trying to find ways to embrace. It's something that is, you know, probably ultimately a small part of our expenditures, our expenses every year, but it's something that is really important to our customers, both in terms of the way our customers engage with us and buy airfare and buy ancillaries, but also, I mean, we refund quite a bit of money, you know, billions of dollars every year and how we make those refunds, how quickly we can do it, how effectively we can do it, you know, the extent to which we can do it without making mistakes. All of that's really important to our customers. So as our customers change their requirements and their preferences about how they do business with retailers and particularly with airlines, we have to stay focused on that and stay ahead of that curve.

Alicia Lines:Matt, when customers come to you, and we know American It's an enormous enterprise, one of the biggest airlines in the world. But it's not the case for every company in this industry. We have the regionals, we have the smaller carriers. Where do they sit, or where does the payment— is there a payment strategy? Is it important for—

Matt Williamson:Yes.

Alicia Lines:For their business, is it, is it not?

Matt Williamson:Well, I'd expand it out because again, we can often get focused into very singular, insular things. So your payments is obviously really important, but I'd say for a smaller airline, it's gonna be cash flow, or any business frankly, is how you're managing your cash flow efficiently. So the less friction you have in pay-ins and payouts and orchestration, the more liquid liquidity you have. And, you know, working capital finance, all those things, that comes from having a better strategy around your payments. But what we'd also add is if you're a new entrant or relatively new, you're not gonna be encumbered by 30, 40 years worth of infrastructure and legacy or heritage technology some organizations like to use, much like the banking world. And I think that's the key thing is this isn't just about, oh, payments. It's about what's the overall strategy for the airline, the business, the company, and then making it as efficient and friction-free as possible. And as Steve alluded to as well, it's not always about the inbound payment, the pay-in piece. It's about the payouts, the disbursements on the back of that compensation. In some cases, disrupted passengers' fuel and what have you. And we're seeing more and more of a move towards you know all airlines now have a digital app of some description, but generally it's about how you onboard, have your ticket, etc., your loyalty points. But we're seeing more and more of a shift where this is becoming ubiquitous engagement tool with the airline, and payment strategy is part of that. I.e., can I split my payment across credit card where I get bonus points, etc., but pay some of that off with my loyalty points as well to upgrade myself, as an example. And then you get into behavioral analytics, which is a whole other element. So, you know, we did a prep before this a little earlier, and I was saying about it is payments, but fundamentally this is also about data, because a payment is just a message fundamentally that says, you know, I have a unique identifier, I'm going to pay this person for this service at this moment in time, whether it's via a credit card or FedNow, for example. And I think that's really where we need to become more intelligent in our routing and understanding of how we're going to distribute payments accordingly. That serves 2 purposes. I mean, this is where we'll talk more about generational changes. Traditionally, we all have to make money, right? That's a given. But as a customer and a brand, you need to make sure that your customer feels that they're put first, and then by doing that, that enables you to make money. If it feels like, you know, The brand is only interested in extracting money from you as quickly as possible without giving something back in return, whether it's loyalty points, upgrades, etc. That's a real change that we need to consider. And, you know, the next generations that come through, they're very keen on brands that align with their own personal beliefs. And I know the US is very— we've discussed this before— very credit card-centric, very, very heavy in tie-ins. And but the rest of the world is different. In that world. And I think this is where payment strategy, especially for global carriers and providers, it's not a one-size-fits-all. It's going to be very specific to the market you're in, the demographic you're going after, and then everything else surrounding that.

Alicia Lines:So I think you've touched on a couple of points I want to come back, come back to. And the first one is, and if I'm hearing both of you correctly, that the importance of payments has a twofold One is the value creation for the customer experience, and the other one is a cost efficiency opportunity for an airline to improve. Steve, where does American sit in this balance of cost efficiency and value creation for your customers? What's really important for you?

Stephen Johnson:Well, ideally, You want to take— create both. It—

Alicia Lines:we—

Stephen Johnson:I think if we could somehow flip a switch and at American move to an ultramodern payment scheme of the kind that Matt dreams about, you know, it would— we'd save a little money. It probably wouldn't, you know, move our— the needle on our profitability very significantly, but it would do 2 things that are really important. First of all, it would remove an enormous amount of friction from the system that, you know, that is, I think, emblematic of the payment systems that we have today. You know, they're very manual. They take time. They're slow. They involve lots of human interaction, approvals, lots of human interactions that can result in mistakes and money being paid to the wrong people, et cetera. All of that could be, you know, addressed by a more modern payment system. that relies on modern technology, blockchain, that sort of thing. In addition, we engage with our customers around payments in a whole bunch of ways. I mean, you think about, oh, we just collect fares, and we do. And we have, I don't know, at American, sort of $55 billion a year in payments for airfare, I suppose, something like that. But we also charge our customers, if they're interested in it, for you know, choices of seats and for bags and for a number of other ancillaries that we offer as part of our products, all of which have to be paid for and have to be managed as payment in. We, in addition, we also, in addition to refunding money when passengers or when our customers change their mind or there's weather or something like that, you know, we don't just refund airfares, we refund baggage fees that have been paid, we refund seat fares that have been paid, all, you know, very complicated stuff that our— and our customers expect that to be paid quickly, reliably, without error, and back ideally to the method that they used to payment. Those are all very complicated things, and if we do them well, our customers are satisfied. If we don't do them well, our customers are really unhappy. And we operate in a very competitive environment, one where our, you know, everyone Everyone in the airline industry is moving in these directions. Everyone recognizes that this is part of the customer experience. Inevitably, we have to do that. I'd say one final thing because Matt mentioned it. We do that, you know, in our case, primarily in U.S. dollars. We have, you know, a small percentage of our revenue and repayments are in foreign currencies, but we actually increasingly do it in a second currency that is really important, really large, and really part of our future, which is Advantage Points, our frequent flyer points that are now increasingly becoming a parallel currency for use at American and every day a parallel currency for use with partners to American. So we've got to find a way not just to accomplish all of those things for cash and advantage points, but we have to recognize that as already today, but particularly as time goes on, those 2 are going to be combined and smooshed together in a way where our customers want to be able to use them interchangeably and in some cases, as Matt alluded to, in the same transaction. So I mean, just an enormous number of payment systems that have to be managed and ideally turned into one, you know, ecosystem that works really well for our customers.

Alicia Lines:So, I hear you. American is really using the payments options to serve their customers how they want and how they prefer. But Matt, you spoke about cash flow, and after that, we'll go to a question that we have in the audience. And you talked about cash flow, treasury, and the cost of payments, and that's the other balance.

Matt Williamson:Yeah.

Alicia Lines:And maybe not every airline is looking at a customer experience exclusively. Can you expand?

Matt Williamson:Yeah, I think it comes back to it depends because, you know, a lot of us here will operate in a global world. Fundamentally, it's not necessarily just regionally. So if we're in that context, then you're talking about FX, hedging rates, that kind of thing. We've seen, you know, fuel prices, you know, that's been a big theme here and the the geopolitical and conflicts fundamentally that happen around the world. So having a good hedging strategy around that is obviously key and relevant, and that then falls back onto your payments ecosystem. Who are your providers? How quickly can they offer you liquidity? How quickly can you send and receive money to them? How quickly can you service your credit line requirements, etc.? But a large part of this just comes back to, as we mentioned at the beginning, this is part of a broader business strategy as opposed to just being about payments as a whole. And something Steve, Steve alluded to then as well is ecosystem. We're seeing more and more that you don't and you shouldn't necessarily go, go alone. And loyalty and brand equity is going to move more and more into the ecosystem play. So, you know, we've discussed before things like I've flown here from the UK, I had to do multi-stops, I've used several Ubers because they're just easy now. And, you know, again, it's via a wallet, and then I've hit my hotel. Now in this, this example, really our— my company's tour operator should have got me the most cost-efficient, time-efficient, and easy way for me to make that journey. As happenstance, I'm not going to name the carriers, it was a really sucky trip, frankly. Delays. I had an argument with the provider who said, oh, your first flight is saying it isn't delayed, therefore that doesn't impact your second flight, while I was sat in— sorry, Stood in the queue at Charlotte Airport desperately trying to get through customs to run to my next flight with about 35 minutes, including a security stop as well. So I'm having my own argument with a provider, and this, this falls back to payments because they wouldn't even tell me what my options were. Is there another flight? Can I book you into a hotel? So where this suddenly becomes important is, as a customer, if somebody said, Matt, we understand this is very stressful as you're traveling, this, this, this is not fun. We've taken care of it for you. The fact there's a whole set of payment rails in the background that facilitates that, I don't really care about as a consumer, right? As a provider, I do. But the reality is then I just say, fantastic, you understood my pressure, my pain, you sorted it for me. That's me on my own. But imagine if you're traveling with a small, you know, young family and children. Suddenly that becomes exponentially worse.

Alicia Lines:Thank you. Have a question. Yeah, so you operate and transact, of course, globally. How do you use customer data to monetize and drive profitability while being compliant to GDPR on a global scale?

Matt Williamson:Is that for me or Steve?

Stephen Johnson:Both. Okay. I mean, boy, that's a— it's a great question. I'm tempted to say that it's, you know, sort of the next panel is going to answer that question because it's, you know, sort of outside the scope of this. But I'll just say quickly, That we have now had, I guess, a decade to sort of refine the way we comply with GDPR, and we feel very comfortable that we're doing it notwithstanding the fact that, you know, very complicated, we're principally a U.S. business, etc. But we've managed to, I think, define ways and continue to improve ways in which we can use customer data for the benefit of our customers, to provide— to design products that our customers want, to target products to customers who we know want them. And all of that's been able to be done, I think, you know, with quite a bit of work, I suppose, and quite a bit of thought by our lawyers and our data experts. But nevertheless, we feel really comfortable that we comply with GDPR. Our efforts in that area are growing and accelerating every day, and that we're going to be able to do that in a way that works really well for our customers but nevertheless complies with the law.

Matt Williamson:Yeah, we— I could spend hours going through this. This is really good stuff. So the— again, if you hop out to a slightly higher level, if you look at it really, this is about a customer feeling insight. So let's use American as an example. American understand me and my needs, and I feel that they're doing it for my benefit. Versus this is creepy, you're pushing things to me that I don't really care about. How did you understand that about me? That's the real difference. And we talked earlier, touched on it, about the generational shifts. The generations are shifting along so much. I talked about the device and children, what have you. They trust the device. So if it's providing them with a service or access to something that they deem of value to them, it's less of an issue. Now obviously there has to be permissions around this. But again, how often do you read the T's and C's in something that's, you know, 1,000 lines long when actually you just want to complete the journey of the transaction that you're on? So I think you're going to find more and more— and I'm going to open a whole can of worms now on agentic commerce and AI— where you're going to get into delegated authority whereby a merchant, as an example, will be represented by one agent. You as an individual will be represented by your own agent. And they will look to find the best deal based on your parameters that you're happy to share, whether it's this is how much you want to spare on— spend on a flight. For example, I'll prioritize economy to fly out because I'd like to spend more on the hotel, as an example, because I'll be there. But then you'll have agents bartering with each other to get the best outcome for both the merchant side and the consumer. So the data piece is going to get really, really interesting really quickly. And I think part of that is then going to be when something inevitably goes wrong, Who's liable? That's suddenly going to be a whole other ballgame where the lawyers in the room can get excited about.

Alicia Lines:So last question because time is running out here. You have— we have a question. I'll let you— in the meantime, while we get the mic, quick question to you, Matt. I've been hearing technology, cash flow, customer experience, opportunities in creating new revenue streams, ancillaries, all these is supported by payments. If an airline or the people sitting here want to go back to their place of work and say, look, we have to start looking into it, how do you create a governance? Is it treasury? Is it finance driving? Is it IT driving? Is it commercial? What do you see out there in your experience when you talk to customers?

Matt Williamson:It's all the above. But fundamentally, as with any transformation program, whatever that may be, you need exec sponsorship. So you need to speak to the right person in that organization initially. And that in some cases may be, you know, the CEO or Chief Products Officer, or often Chief Finance Officer because they're obsessed by money, quite rightly. But I think again, it's— you've got to start. You know, I'm gonna plug something here which I get nothing for, but the, the Celio Group released an airline study last month That highlights a lot of this and where a lot of the airlines stand on payments as a whole, as well as transformation and distribution. And the reality is this is happening. Is it at the board level conversation yet? Probably not, in truth, in the airline industry. And that's okay because things are moving on and people are starting to see the relevance. But this will become eventually a priority either at the C-level or just below because it has to be because the world is moving so fast. Look at the adoption of AI. in the last 24 months as a whole. People have embedded it into their lives at all age ranges. So this is happening. It's going to be a case of where do you stand in this transformation? Do you want to be an early adopter? Do you want to play? Or are you going to sit and wait and see? But it is going to happen.

Stephen Johnson:And Alicia, I— and for the questioner, I'd say that this is nothing new in the airline industry. I mean, it's the, the, the airline industry is the ultimate team sport. I mean, we can't push an airplane from the gate without collaborating across a whole bunch of different functions. And we've, you know, dealt with money in the billions and billions of dollars a year as an industry for a long time. And, you know, bringing this modernization revolution to our companies, I think, is just going to be another example of that really good collaboration. And, you know, with a— as you say, with executive sponsorship, and the objective of providing, you know, just an increasingly quality customer experience, you'll see the airlines step up and deliver.

Alicia Lines:Thank you. So last question, I hope it's a simple one.

Stephen Johnson:It's somewhat simple.

Matt Williamson:So, Matt, this is for you.

Stephen Johnson:So from a high level, if you look at modern payments orchestration at an airline and somebody that's forward-thinking like Aer Lingus, Can you give a high-level snapshot of what that looks like at an airline?

Matt Williamson:Yeah, of course. So if the study I just referenced, funnily enough, part of that talked about end-to-end orchestration. So as Steve was referring to, you know, there's pay-ins, payouts, the piece in the middle, orchestration. And it said that in the— within the group that was— that participated in the study, just for clarity, not globally, 1% had end-to-end orchestration capability. across their payment stack, which is fascinating. So it doesn't mean there aren't— there isn't sophistication in other airlines, but it's not end-to-end. So using Aer Lingus, which is one of the case studies, and we in Endava built their orchestration layer, a large part of that was around dynamic routing. So, you know, you have to receive payments, you have to send them out, but what is the best method of travel for that payment? So if we take an example now, a $500 ticket has a card processing fee of somewhere between $5 and $10. Yeah. Per transaction. Now, if you use another alternate payment method, that might be 10 cents a transaction. And especially when you look on the payout side of things, if you can reduce your scheme fees across the board, that does have a significant number. I think the last year, the ballpark estimate is for airlines alone, scheme fees globally— so card and FedNow, RTP, etc.— was around $20 billion for the industry. Which is an extreme amount of money just because you have to do it, not because it's necessary. There's a necessity behind it. There are other, other methods. And unfortunately, because of the heritage, as we talked about, infrastructure with a lot of airlines, it's not always possible for them to do that because right now it's siloed. But the orchestration piece is a quick fix to get to that as a foundational start for your payments transformation.

Alicia Lines:So Matt, Steve, thank you so much for your insights, for joining us today, and thank you, all of you, for sticking around and giving us a chance to talk about payments. Thank you.

Matt Williamson:Thank you.

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