IATA’s Transparency in (B2B) Payments, shifting back the balance

In my series about the impact of regulations on Airline payments ("101"), number 4 out of 4, a (quick) look at the B2B channel and the impact of IATA’s Transparency in Payments on Travel Agents selling tickets on behalf of airlines. I do realize that for airlines this is more a distribution strategy topic than an item purely related to payments, as it impacts mainly the relationship between airlines and agents. Knowing that distribution is not really my "cup of tea", I'll give it a shot to explain and summarize it from a payment perspective.

Let’s start with IATA’s definition: “Transparency in Payments (TIP) is an industry initiative focused on providing airlines with increased transparency and control in the collection of their sales through the travel agency channel. At the same time, it will enable travel agents to take advantage of new forms of payment for the remittance of customer funds”.

As mentioned in my recent article on payments for NDC, travel agents pay airlines for bookings made via the GDS’s predominantly by “BSP Card” and “BSP Cash”. Under IATA's resolution 890, until NewGenISS, the agent was technically only allowed for “BSP card” to pass on the customer’s card details (like for like). In practice however agents in many cases decoupled the “pay-in” (consumer payment) from the “pay-out” (supplier payment) and inserted a corporate card or virtual card in the booking to create flexibility, optimize processes and in case of virtual cards, a revenue stream.

Some sample scenarios from an Online Travel Agent point of view:

• Accept a single payment for a booking that includes multiple suppliers
• Accept a consumer payment in a different currency than the fare in the GDS
• Accept a (local / alternative) form of payment not supported by the GDS

For the above mentioned use cases, a travel agent would generate a virtual card (VCC) on the fly and insert it in the booking, replacing the consumer payment. The VCC will then be processed via the existing "BSP card" flow, the main difference typically being that transactions attract higher interchange costs (which are partially shared by the issuer with the travel agent), but VCC's for instance also protect the agents against losses due to airline bankruptcies.

Under the new resolution 890 agents are now allowed to insert “their own card” (VCC, corporate card) as long as they come to a bilateral agreement with the airline, mainly about the costs. As you can see from the below comparisons, from an airline point of view, there's quite a difference between the available options, whereby there's in some cases a correlation between costs and speed of payment (impact on cash flow). Next to these 2 factors also e.g. agency default risk, fraud, data breaches, reporting / reconciliation, global coverage and impact on operational processes will need to be considered:

Source: IATA NewGenISS Airline Readiness Guide which can be downloaded from: https://newgeniss.iata.org/airlines/resources/    

The challenge for the vendors active in this space is now to help the airlines and agents with products that strike a balance between (incentivizing) sales, (lowering) processing costs and (improving) speed of payment, but are also scalable and relatively easy to implement / roll out without disturbing the legacy processes that have been in place in some cases since the introduction of BSP in 1971. The airlines will have to enter into discussions with the 20% of the agents that bring in 80% of the volume, knowing that some of the airlines are currently completely blocking the use of VCC's and now have an option to reconsider their (indirect) distribution strategy.

I'm looking forward to learn more about this topic and meet/discuss with the stakeholders during the upcoming IATA World Financial Symposium in Miami which will take place in Miami, FL, from September 23-26.

As always I welcome your feedback and additional information relevant sharing with the wider Travel payment community. #awareness

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