Payment Presents Four Unresolved Challenges for NDC

Travel packages offered through NDC may create unexpected liabilities for airlines

At 2017’s World Passenger Symposium in Barcelona representatives of airline trade association IATA held up an inflatable unicorn with “NDC”, the name of a communications standard, written on the side and put it on a stool. During a presentation about the potential for the NDC to change the airline industry, it fell off. The metaphor is unfortunate - there is great potential for NDC and subsequent technologies to help airlines (see article), but some unresolved issues around payments may yet disturb the programme.

What is NDC?

The New Distribution Capability (NDC) allows airlines to bundle travel products together and offer the same packages through travel agents that the airline offers itself. This means that an airline can potentially expand the range of it’s products to put almost anything in the market, from restaurant meals to meeting rooms and bungee jumping to snowboard rental. NDC allows airlines to become true travel retailers.

What are the challenges?

There are four unresolved challenges regarding payment that airlines might encounter having offered NDC.

1. Since the airline is the consumer facing agent for the travel services it sells, who the payments industry call the “merchant of record”, they will be liable to accept the risk of fraud. Imagine a person flying to play a round of golf – if that person buys a flight, hotel room, restaurant meal and a set of golf clubs, the airline may have to pay the hotel, restaurant, shop and golf course even if the transaction turns out to be fraudulent.

2. When trips do not go according to plan the airline could be liable to refund the whole travel experience rather than just a piece of it. In our golf example above, if the day is a wash-out and no play takes place the traveller could claim that the entire travel experience was not delivered as advertised and require a refund for every service, not just the round of golf itself. It is not clear whether or not a partial refund for what the airline considers the value of the golf alone is beyond dispute.

3. Some people use credit cards and travel products to speculate on currency movements. For example, if they believe the Euro will appreciate ten per cent over the Pound they could buy a refundable travel product priced in Euros on their credit card billed in Pounds, incur a three per cent exchange fee, wait for the exchange rates to change in their favour, obtain a refund with another three per cent fee and still be up four per cent. This matters because if other vendors perceive that their airline partners are providing poor quality bookings they may no longer participate and the airline loses opportunities forever.

4. As payment security regulations evolve it is not entirely clear whether or not NDC can cope. The EU, India and USA already have strict rules regarding multi-factor authentication and these are only likely to become more complex over time. Since airlines using NDC will be selling across many regulatory regimes even in one transaction, they may encounter compliance risks.

What is the solution?

Chris Staab, an industry veteran, told me that when IATA was designing NDC the relevant committees were commercially minded and finance people were left out of the room. The result was that NDC was built from the airline up, but the payments industry is not structured this way and had the acquiring banks and card schemes been included at the start these four challenges could have been resolved at the design stage.

However there are opportunities to use data to resolve the issues. Payment services provider Mastercard recently purchased Ekata, a startup offering data to validate whether or not a particular customer is trustworthy based on their previous billing history. There may be opportunities for airlines to use such data to evaluate transactions as they appear in real time, assess whether or not they are likely to be problematic, and accept or decline the transaction on that basis. It can even work the other way round, as airlines could actively offer bundles specifically tailored to trustworthy consumers and fraudsters missing out.

What do you think? Are airlines at risk by using NDC? What are the solutions? Write to me and let me know – oliver AT ransonpricing.com