PIN Debit: Grounded

  While PIN-debit acceptance could be an attractive low-cost payment option for airlines, consumers are hesitant to provide PINs to pay for tickets, and airlines are not providing the option, even though ATM-like airport ticketing kiosks are proliferating, a recent study by Edgar, Dunn & Co. reveals.
  The release of the study results comes at a time when airlines are attempting to reduce ticketing costs by shifting more business to the Internet and to Internet-connected kiosks located in airports and hotel lobbies. The kiosks initially are being deployed for preboarding check-in registrations. But some also enable consumers to use a credit or signature-debit card to buy tickets and in-flight drink and meal vouchers, and both types of payments impose higher interchange-rate charges than does PIN debit. Acquiring banks pay issuers interchange and pass the cost along to their merchant clients.
  "A lot of it has to do with the comfort level of the customers," says John Slater, managing director, distribution and commerce, at Houston-based Continental Airlines Inc. "People don't necessarily feel it is secure to enter a PIN online and that doing so at a kiosk adds an extra step that can slow them down." These kiosks currently are not connected to PIN-debit networks and do not have PIN pads built into them.
  Not Ruled Out
  Continental has not ruled out eventually including PIN debit in its payment mix, says Slater. But he says it will take time to gauge the kind of payment options customers will accept.
  In the meantime, airlines are taking a closer look at other, alternative payment forms, such as Bill-Me-Later, electronic checks and cash payments through Western Union, to cut payment-acceptance costs. Of these three alternatives Bill-Me-Later, an electronic invoicing system, is gaining traction fast.
  Airlines pay an average of $12.50 in merchant fees per card purchase, says Pascal Burg, an Edgar, Dunn director. "Merchant-acceptance fees are not the airline's biggest line item, but it is a cost that is getting more attention," he says.
  Bill-Me-Later says it has signed deals with America West and Continental to use its electronic-invoicing system. Launched in 2001, Bill-Me-Later provides consumers with instant credit for a one-time purchase. Consumers provide their Social Security number and date of birth, after which they are given an instant credit decision over the Internet.
  Once the transaction is approved, consumers are sent an invoice to be paid within 30 days of the purchase. The purchase carries a 17.9% interest rate charge, according to the firm.
  While airlines pay Bill-Me-Later a transaction fee from 1.5% to 1.75% of each sale, the cost is less than what they pay credit card acquirers. In comparison, the blended interchange rate for Visa and MasterCard card-not-present transactions, which would include airline tickets purchased over the Internet or by phone, is 1.85% plus 10 cents, sources say.
  Reward Perks
  "One advantage our pay over time model offers is that it can move consumers using a credit card online to purchase an extra ticket or take the higher priced vacation package through the airline," explains Mark Lavelle, vice president of business development for Timonium, Md.-based I4Commerce, which operates Bill Me Later. "Our partners are seeing incremental sales."
  In February, Bill-Me-Later launched a promotion with America West in which customers paying with its service received 1,000 America West frequent-flier miles. The company also is considering incentives for hotel and air packages through its online travel partners, such as Expedia.com, says Lavelle.
  E-checks cost about half the price of processing a paper check. Merchants pay an average of $1.22 to accept a paper check, according to industry experts.
  Cash, however, remains the lowest-cost form of payment for airlines. Western Union, a subsidiary of Greenwood Village, Colo.-based First Data Corp., is competing with card issuers in airline ticketing payments by offering consumers the opportunity to pay for airline tickets at about 46,000 U.S. Western Union agent locations throughout the U.S.
  Unlike other payment methods, airlines are spared the merchant fee by Western Union, which shifts the cost to consumers by charging them a transaction fee. "This model represents a 100% savings for us when it comes to merchant fees," says Continental's Slater.
  Although Continental will not divulge how much volume is running through Western Union, Slater says it has exceeded expectations and that volume is especially strong in the Northeast and the Southwest.
  After purchasing a ticket online or via telephone, Continental customers can pay for the purchase at any of Western Union's U.S. agent locations. Continental has expanded the service to the United Kingdom, where Western Union has more than 2,200 agent sites, and in Mexico, where it has 6,000 agent locations. Western Union also has a deal with Aeromexico, Mexico's largest airline.
  Eventual Acceptance?
  With all of these airline ticket options emerging, Slater remains confident that consumers eventually will embrace PIN debit as well, and airlines at some point accept it.
  "E-checks are debited from checking accounts, so using the checking account for large ticket purchases is not really an issue," he says. "It's just a matter of making people feel comfortable with (PIN) debit for this type of purchase."
  AIRLINE PAYMENT COSTS
  Payment Type Cost
  Credit/Signature Debit* 1.85%+10cents
  Airline Instant Credit 1.5% to 1.75%
  Cash/Money Transfer None
  Source: Airlines, Edgar, Dunn, and ATM&Debit News.
  *Card-not-present transactions.