Instapay: Instant payments in action: Deutsche Bank and the International Air Transport Association (IATA)
Interview with Christian Schäfer, Global Head of Payments, Cash Management at Deutsche Bank
1) Deutsche Bank recently announced that it is working with the International Air Transport Association (IATA) on a real time payments platform. Can you tell us a bit more about this project?
Deutsche Bank’s payments pilot with IATA – the trade association for the world’s airlines – will implement a new and much improved solution for internet-based ticket sales, and is a perfect example of the opportunities that the new API-enabled landscape brings. Via this solution, enabled by PSD2, Deutsche Bank will collect customer payments for tickets directly from individual customer accounts, removing the need for them to make credit and debit transactions to the airlines.
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.
2) IATA has some of the biggest airlines in the world as its members, including American Airlines, British Airways, Emirates and Lufthansa; what is the benefit to these airlines of implementing an alternative payment method?
The new payment method is beneficial for airlines and their customers. Airlines benefit from faster payment and lower cost for processing, increases in liquidity and working capital, finality in payment as well as reduced funding cost. As payments are processed and received much faster than with traditional payment methods, IATA´s airline members will benefit from the acceleration of payment execution. Deutsche Bank will offer a turnkey solution with wide coverage in terms of geographies and banks as well as easy and efficient implementation. Customers benefit from convenience, security and potential incentives provided by airlines.
3) From a consumer perspective, with instant payments, when money is taken from the account the money is gone and irrevocable. What does this mean for the money-back guarantee?
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.
4) B2C and B2B take-up of instant payments has been slow comparatively to P2P, why do you think this is?
The maturity and scale of existing P2P solutions are not adequate at the scale of B2C and B2B commerce, for example with respect to operational and financial risk management. The banking industry acting through their associations as well as governments have realised the need for instant payment schemes and defined a governance framework as well as operational safety requirements. DB receives very positive feedback from its corporate client base about these developments. We already offer instant payments in multiple markets and prepare to launch its Instant Payments offering in Europe in Q4 2018.
5) PSD2 has enabled the types of initiatives, such as the one you are working on with IATA, to flourish. Are there any other projects Deutsche Bank has in the pipeline such as this?
DB is working on multiple product offerings leveraging the legal and technical ecosystem created by PSD2 in the retail and corporate business. You can expect further announcements to come.
6) How important are these types of partnerships in changing the payments landscape across Europe?
Clients are at the heart of our business and serving their needs is the basis for strong relationships. Developing new products jointly with clients makes sure DB is investing in the right products and helps clients with the solutions they need to address their needs. In turn clients help us to make the rights investments, especially in an innovative space like the payments.