Taking mobile payments to new heights, MasterCard Worldwide soon will conduct a test of contactless-based payments at 30,000 feet, enabling passengers to purchase refreshments using its contactless PayPass technology aboard planes from WestJet, a Calgary, Alberta-based airline.
The 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, Brett Proud, executive vice president of new products and markets at Toronto-based GuestLogix Inc., which provides card processing for most of the world’s largest airlines, tells PaymentsSource.
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. Now the company is laying the groundwork for contactless payment-based mobile payments as that market emerges, Proud says.
“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 merchandise on flights by expanding the array of 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.
So far, the biggest obstacle to further development of onboard airline payments is the fact that inflight 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 cards and devices can operate in an offline mode, but GuestLogix’s goal in the test is to pave the way to online card authorization as early as next year with a rollout for NFC payments to follow that support two-way communications between the chip in the phone and the one in the reader, Proud says.
GuestLogix is testing online credit card authorizations with two undisclosed airlines outfitted with live Internet access, and 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.
Though early in the evolution of robust inflight mobile payments, airlines are motivated to explore the channel because of its revenue opportunities, as long as they can mitigate fraud risks, one analyst 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 Boston-based Aite Group, tells PaymentsSource.
“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 another analyst, 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 inflight without violating airline rules about phone use, Riley notes.
And card-transaction fees could cut into profits on small-ticket transactions, which comprise a good share of the types of transactions offered during flights, he points out.
The major card networks recently signaled they are not necessarily giving merchants a break on debit card fees, and that is cutting into vending machine merchants’ profits (
“If the airline isn’t completely gouging customers on the cost of a bag of chips, it could be tough to make money on these low-balance transactions,” Riley says.
Still, it is not surprising that airlines are exploring new revenue channels, “given what they have done with baggage fees,” he notes.
“It’s obviously very early in the evolution of what mobile payments onboard airlines will look like in five years, but it’s clearly worth exploring,” Riley says.
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