On almost any commercial flight, you’re likely to see a credit card reader somewhere on your seat or the seat in front of you. When the flight attendants come around offering premium snack boxes and drinks, they too will be toting a credit card reader of some kind.
While the flight experience now seems built around credit card transactions from check-in to arrival, it was not always so. In 2009, Continental, Delta, and Northwest became the last major American carriers to completely phase out cash for in-cabin transactions.
This isn’t a new innovation. When the carriers phased out cash, nearly 80 percent of Americans had some kind of credit card, not including debit cards. But that figure had been consistent for the previous decade, actually peaking in 2002 at 83%. Airlines’ response to their customers’ spending habits has been slow, especially where in-cabin purchases were concerned.
The Rise of Digital Payments
It would be a mistake to think that equipping entertainment systems and flight attendants with credit card readers is a lasting solution. Credit cards are facing stiff and growing competition from the digital payment sector. Airlines need to be proactive about meeting their customers’ spending preferences; otherwise, those card-readers could end up as obsolete as the individual telephone handsets still seen on older planes.
Digital payment companies have been on the scene since the advent of Paypal in 1998, but in recent years they mounted a serious and sustained challenge to the dominance of credit cards. Because they link directly to a user’s bank account, these are seen as a more responsible, cash-like format, one that’s less likely to drive users into debt. Vendors meanwhile are attracted to their lower transaction costs and faster availability.
Plus, in countries like China, where banking regulations make it harder for conventional credit card companies to operate, digital payment options have a built-in advantage. China’s leading payment company, WeChat Pay (a division of the country’s largest social media site), has over 600 million users, while AliPay boasts over 450 million users.
Innovative Payment Takes Flight
It was in China that airlines first began to accept digital payments for ticketing and in-flight purchases. The trend started to go global earlier this year when a pair of European carriers, Finnair and KLM, set out to capitalize on Chinese consumers’ preference for digital payment.
Finnair began accepting AliPay for in-flight transactions, while KLM quietly started letting customers use WeChat Pay to book tickets. For both airlines, the upshot was clear: by meeting Chinese consumers where they were most comfortable paying, they distinguished themselves from all other European carriers, attracting more business to their Shanghai routes.
Moreover, the ease of payment has made a real difference to their bottom lines. Since Finnair started accepting AliPay in February, it has seen a 200% increase in in-cabin sales.
The Future of Payments for Airlines
These case studies make clear that traditional payment practices have already begun to shift. Regional carriers in the Philippines and Malaysia, as well as international carriers in the United States have begun to accept AliPay in flight and for ticket purchases. Russian airline S7 recently became the first to accept the blockchain-based cryptocurrency Ethereum for ticket purchases, while Aeroflot is said to be exploring its options for accepting cryptocurrencies as well.
More and more, carriers are realizing that they have to meet customers where they are comfortable paying, not force those customers into their preferred format. The migration away from traditional credit cards and toward innovative payments has begun. Airlines don’t have a decade to make up their minds about whether they want to accept that trend.
In another five years, global commerce will likely resemble an intricate mosaic of digital payment types: cryptocurrencies like Bitcoin and Ethereum bumping up against regionally popular digital payment platforms like AliPay, M-Pesa, and Venmo and a few global brands like ApplePay.
This mosaic won’t be confined to individual customers either. Corporate entities and other organizations will adopt them as they scale for business clients. If airlines want to capture maximum value, agility will be the name of the game. As the world of payment diversifies among a host of providers, the winners won’t pin all their hopes on just one. They’ll work with a broad range of providers, giving a convenient buying experience to the most customers possible.
But this market-wide shift in spending habits should teach us another lesson. It’s no longer a question of hopping from one method to the next: from barter to cash, cash to credit, credit to digital payments. After all, the airline industry and the credit card sector developed in mutual prosperity. The concept of air miles encouraged millions to sign up for credit cards which bound their loyalty to a particular airline.
For a long time, it worked. But digital payments are displacing credit cards just as the rewards are becoming less attractive and the bonds less binding. The real winner in this new age of innovation will be the airline that pioneers a way to find and keep customers, no matter how they prefer to pay.