The new European Payment Services Directive (PSD2) is driving important changes in payments that will have an impact on airlines. PSD2 requires financial institutions to have open application program interfaces (APIs). It also requires financial institutions to share data and information on transactions that will make costs and intermediaries transparent to the user.

Under PSD2 competition will increase for European payment systems as innovation is unleashed. Payments are expected to become essentially instantaneous. Security will improve and more transparent competition will almost certainly drive down costs.

PSD2 will create opportunities for new forms of payment. IATA is investigating how this could be applied to payments by passengers: both direct to the airline and indirectly via travel agents. The potential prize is huge. Globally airlines absorb more than $8 billion in costs for merchant fees and fraud.

Instantaneous transactions would avert fraud and avoid foreign exchange surprises, as transactions wait for processing and, with greater transparency on costs, airlines will be able to manage down transactions fees.

Although IATA’s Financial Settlement Systems have historically concentrated on the indirect channel, PSD2 could enable IATA to further support airlines by facilitating settlement of direct sales from airline websites and call centers.

By moving quickly to trial PSD2 capabilities, IATA aims to become the financial settlement platform of choice for airline direct sales

“PSD2 clearly creates an opportunity for IATA to help airlines achieve faster, safer and cheaper transactions. Given the huge amounts airlines are paying in transaction fees, fraud and compliance, this will certainly be a valued innovation,” said Juan Iván Martín, Head of Innovation, IATA Financial and Distribution Services.

In order to test the potential benefits, IATA is putting together a pilot with two business partners. This will involve working with a large European bank and with a Fintech, ipagoo LLP, a UK-based company. The findings are due to be presented at the IATA World Financial Symposium in Madrid in September 2018.

The trials will be based on the newly required transparency under PSD2 to assess the fastest and cheapest ways of transferring money in Europe. Adoption is expected to be relatively easy by airlines as the underlying IBAN and SWIFT standards are unchanged.

“IATA has proven its capability to meet travel agent and airline needs for efficient settlement of sales made through the travel agent channel. By moving quickly to trial PSD2 capabilities, IATA aims to become the financial settlement platform of choice for airline direct sales as well. Faster, safer and cheaper is what airlines want. And it’s what we aim to deliver,” concludes Martin.