Airlines Eye Closed-Loop Payments Solutions to Reduce Payments Costs

While the cost of processing credit cards has dropped dramatically over the years, some of the interchange levels have remained relatively high.

This has led to an economic model evolving within the travel industry where some of the benefits are being passed to the buyer. But merchants, on the other hand, often feel as though they’re not yielding the same benefits.

To redress that balance, payments and card issuance Nium announced Tuesday (Nov. 22) the launch of its Nium Airline Payments (NAP), a closed-loop payments solution powered by Universal Air Travel Plan (UATP).

In short, the closed-loop model brings the buyer and the seller together to have a long-term, mature conversation to determine where the value exchange is in terms of the purchasing power of the buyer and the opportunity available to the merchant.

[“It’s an opportunity for players] to continue to use the benefits of credit cards, to have a modern form of payment, [and] to get that discussion about whether they’re paying the right balance for value in the equation, put to bed once and for all,” Spencer Hanlon, Nium’s global head of travel payments, told PYMNTS in an interview.

With the NAP closed-loop network, airlines, travel agents and online travel agencies (OTAs) are now protected from the “hostile ways of working in nonacceptance and surcharge” that have driven up the cost of business-to-business (B2B) travel payments for years, Hanlon added.

It also solidifies the relationship between the parties, he further said, potentially leading to a wider conversation around price, access, capacity and service, which could be open the door to a much richer commercial conversation between the buyer and seller.

While the concept of a closed-loop solution is not necessarily a new one in the credit card world, Hanlon explained that the pandemic put a damper on its uptake, but it has since started to gather steam as card penetration increases and travel picks up.

“It is now pervasive across the travel environment and is outstripping some of the older mechanisms such as clearing houses [and] bank settlement plans here in Europe,” he said, adding that “it’s very timely that we have an alternative that the industry can consider and engage with.”

Closed-Loop: Not A One Size Fits All

Air Europa, Spain’s third-largest airline, is one of the first major players to partner with Nium for the solution — an ideal partner, which, according to Hanlon, understands the value of credit cards in the ecosystem and is keen on working with buyers and intermediaries to close the door on damaging surcharges and limiting non-acceptance policies.

And as other household names prepare to come on board, Hanlon pointed out that the closed-loop solution is not for everyone, but rather geared towards partners that are of a certain scale and have a strategic relationship with certain merchants.

“You wouldn’t set up a closed-loop network between a merchant and a buyer for one transaction a month or one transaction a quarter. It’s for those parties that do a lot of volume together and are strategically linked,” he noted. “That’s where this solution adds the most value and can really change the equation.”

That said, there is still a significant amount of value in the wider open-loop system made up of major schemes such as Visa, MasterCard and Universal Air Travel Plan (UATP), Hanlon acknowledged.

But while those cards have a particular function, they fall short when there is a large flow of volume between two parties who want to continue without any friction in that payment relationship.

“That’s where closed loop is the golden ticket to continuing to get a win-win solution and yield all the benefits of credit cards,” he said.