To address what one might call a "flight risk," MasterCard Inc. plans to test contactless payments at 30,000 feet, enabling airlines to accept more secure plastic — and potentially mobile — payments aboard planes.
So far, the biggest obstacle to securing onboard payments is the fact that in-flight transactions must be conducted in an offline mode because of the lack of a steady connection for online card authorizations, which opens the door to fraud.
Contactless payments can work in an offline mode, but GuestLogix Inc., a Toronto company that provides card processing to airlines, expects MasterCard's test to pave the way to online card authorization as early as next year.
MasterCard is testing its system with WestJet, a Calgary, Alberta, airline.
A rollout for NFC payments will follow to support two-way communications between the chip in the phone and the one in the reader, Brett Proud, executive vice president of new products and markets at GuestLogix, says.
GuestLogix is testing online credit card authorizations with two undisclosed airlines outfitted with live Internet access. The company plans to expand the test next year to include more airlines and routes, he says.
"It costs anywhere from $180,000 to $300,000 to equip an airline with Wi-Fi, but as airlines weigh the opportunities it presents, more are adding it all the time," Proud says.
Card security poses "a big challenge" for GuestLogix, but the company stems much potential fraud by keeping "blacklists" of declined, lost and stolen cards and by being vigilant about implementing systems to block acceptance of suspicious cards during flights, Proud says.
Some airlines are sending their settlement file for onboard card purchases through the fraud-prevention system before sending the file for settlement, Julie Conroy McNelley, senior analyst and fraud expert with Aite Group, says.
"To the extent that the products are to be delivered to someone's home, then they can stop shipment of goods for any fraudulent transactions and they can also stop fraudulent transactions from going out for authorization and incurring a charge-back," she says.
There will be "a lot of kinks to work out" before widespread adoption of mobile payments aboard airlines takes off, says Brian Riley, senior research director with TowerGroup.
"Passing your phone down the aisle to the flight attendant to pay for a drink might literally be a stretch from the window seat," Riley notes. "While you might not mind handing your credit card momentarily to a stranger, the whole point of mobile payment is that you get to hold on to your phone; you don't want everyone touching it."
The prospect also raises questions about whether NFC-enabled phones can be configured to conduct a transaction in-flight without violating airline rules about phone use, Riley says.
Still, it is not surprising that airlines are exploring new revenue channels, "given what they have done with baggage fees," he says.
The MasterCard test, which begins next month on one WestJet route, is a significant step toward equipping airlines to accept mobile payments during flights for an expanding array of food and merchandise, Proud says.
GuestLogix during the past five years has provided on-board acceptance of credit and debit cards for food, beverages and certain other items for airlines that include United Airlines Inc., American Airlines Inc., Delta Air Lines Inc. and U.S. Airways Inc.
"People have gotten used to paying onboard flights with cards, but mobile payments clearly is the next frontier," Proud says, noting airlines, hungry to develop new revenue streams, also recognize the potential for selling more varied merchandise on flights by adding secure payment options.
"In the beginning, it was food and beverages. But airlines have come to recognize there is a wide array of merchandise they can sell onboard, including items like wine and apparel they can have delivered to passengers' homes when they land," he says.