Ai Editorial: Managing cross-border payments with aplomb
First Published on 3rd August, 2018
Ai Editorial: Managing cross-border payments is one aspect of business that demands constant attention. Ai’s Ritesh Gupta lists 5 key factors that merchants, including airlines, need to evaluate in detail to step up the acceptance rate.
For international airlines, as operators in multiple countries or continents, there is a need to deal with a variety of payment methods and different laws/ regulations.
A lot of introspection goes into optimizing the overall digital user experience, stepping up the acceptance rate, managing fraud, and being in control of the costs/ fees. This is because a lot goes on behind the scenes during the transfer of funds.
Here we list 5 key factors that merchants, including airlines, need to study to optimize cross-border payments:
1. Impact of regulation/ legislation: Regulatory interventions related to transactions are one area that airlines need to keep a vigil on. Be it for cutting down on costs, improving upon accessibility or paving way for innovation, the regulatory measures clearly indicate that there are plenty of ways in which the sector of payments is evolving.
Bringing down costs for cross-border transactions in euro as witnessed in the case of European Union is one example of this. Similarly other directives include capping of fees for debit and credit card transactions and restriction on surcharges for using such cards. For instance, airlines have been evaluating how to respond to PSD2 - the second EU Payment Services Directive - initiated to improve upon payment services across Europe. It mandates banks in the EU to facilitate users’ account details to other entities, with pre-approved customer consent. The European Commission decided that the second payment services should open the door for non-bank financial institutions to access banks’ data and bank accounts. The access is worked out to enable two categories of 3rd party payment service provider: Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs). In this context, merchants have examined issues such as - will global retailers become PISPs themselves? Is PSD2 adding friction to payments? Do merchants need to focus on online banking e-payments as a viable alternative payment option? How have merchants been capitalizing on provisions allowed through PSD2?
2. Market intricacies: There are payment-related issues that need to be settled at a local level. For instance, payouts related to China are high on the agenda of airlines, especially considering the growth of outbound sector. The distribution landscape is increasingly getting fragmented in China and travel suppliers need to strengthen their payment infrastructure to cater to their B2B partners. As highlighted by J. P. Morgan, a challenge associated with China pertains to each time Chinese suppliers receiving funds from overseas they need to complete documentation for the regulatory authority within a few days of receipt of funds. So it is important to settle cross-border payments to Chinese businesses and consumers, in local currency. Also for payout options, companies are trying to do away with ways that involve hefty transfer, conversion and interbank fees. According to J. P. Morgan, some of the issues that need to be considered are - Is the payments provider a foreign exchange market maker with the ability to offer onshore foreign exchange rates for Chinese currency? Does encrypted file transmission and secure client data, meet local formatting requirements and fully preserve remittance data received by suppliers? Does the solution support local language and regulatory reporting to streamline document preparation?
Overall, Asia is riddled with challenges. For instance, each of the payment options in Asia has its uniqueness, e.g. transaction limit, availability of refund, no pre-authorization, chargeback rights. It will require airlines necessary effort to design and implement necessary payment interfaces and processing flows.
3. Being spot on with acquiring: The role of an acquirer comes into the picture as merchants target higher card authorization rates, lower scheme and interchange fees, and faster merchant settlement. According to Adyen, a majority of global merchants settle for a blend of local and international (or cross-border) acquiring, but adopting local acquiring approach nearly always has a positive impact on authorization rates. Though this varies by market, a merchant will typically see as much as 0.5-0.6% in uplift after transitioning from cross-border to local acquiring. Mexico’s Viva Aerobus acknowledged that it had to work on its technology to facilitate payments from passengers abroad, as they used their international credit cards in various currencies, and there was also need to adhere to are local banking and industry regulations. The low-cost carrier chose Worldpay’s acquirer solution to process international transactions.
4. Optimizing UX: A major part of airlines’ commerce strategy includes optimizing their digital assets by offering a frictionless payment experience. Consumers are in control – they pay via their chosen payment method and through the device they are using – so airlines have to support the same. In order to support shoppers around the world, it is vital to present checkout information that is customized according to a particular region. The focus needs to be on the language, currency and payment type etc. A cross-border payment processing system should automatically detect a shopper’s URL, serve the appropriate options in the preferred language and also adjust purchase prices to the correct currency.
5. Payment infrastructure: Airlines need to design the integrated payment flow across payment options across channels and languages; implement integrated payment transaction and settlement reporting, gear up for multi-currency processing and conversion and opt for payment controls according to the difference of processing by payment types etc.
Hear from airlines and other industry executives about top payment-related trends at the upcoming 7th Annual Airline & Travel Payments Summit (ATPS), co-hosted with UATP, (4- 6 September 2018 in Phuket, Thailand).
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