SEPA Instant Payments In Action

by Sarah Grotta 0

real-time payments

The European Union’s real-time payments solution SEPA Instant Credit Transfer will be the underlying payment network behind a service being “piloted” with Deutsche Bank and International Air Transport Association (IATA).  Consumers will be able to buy tickets in real time to anyone of the supported airlines.  As explained in a post on InstaPay, the benefits to the IATA and the airlines is clear:

Using instant payments supported by SEPA Instant Credit Transfer, these direct payments can be processed and received in near-real time and airlines can receive funds faster, generating significant working capital and liquidity benefits. Crucially, by removing costly interchange and credit card fees and enhancing fraud protection (via two-factor authentication), they can also significantly reduce their costs. For IATA’s members, this cost-reduction could total several billion USD. The pilot is initially due to be rolled out in Germany in Q4 2018/Q1 2019, and thereafter goes Europe-wide in Q2 2019.

So the airlines save processing fees.  What about consumers?  The checkout process seems less than elegant.  Buyers will need to provide their account detail and provide some additional form of authentication, unless the 2-factor authentication requirement will be executed seamlessly behind the scenes. Importantly, buyers will also lose out on card rewards.  It also appears that consumers will also have fewer options to dispute a transaction.  As explained, there is a next refund for unauthorized transactions, but it’s not entirely clear  what happens if a bad transaction is recognized at some point beyond the next day:

The regulatory framework in Europe provides two safety nets. PSD2 provides consumers safety with respect to the execution of payments, for example via the requirement for Strong Customer Authentication via two factors and the next day refund requirement for unauthorised payments. Strong consumer rights in Europe provide further comfort for the relationship between consumers and the airline. 

It appears in this use case for faster payments that the benefits are one-sided.  The airlines are getting irrevocable funds immediately at a lower processing cost.  But if buyers are giving up time, rewards and protections, this is unlikely to see much adoption.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

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