APEX Insight: As the October deadline looms for US merchants to accept “smart cards,”or microchipped credit cards, many airlines are still undecided on what point-of-sales terminals to adopt. According to GuestLogix senior vice-president Craig Proud, the options exist, but the challenges faced by the industry are much more complex.
While some airlines have accepted smart card payment onboard for years, early adoption was driven by the use of securer, microchipped credit cards that were popular in the UK. In the US, however, many consumers still only carry magnetic strip credit cards.
“The US has lagged behind in adoption,” Craig Proud, senior vice-president at GuestLogix says.
Proud says at least 60 percent of US consumers don’t have chip-and-pin credit cards even now that banks are making the transition. Other payment technologies, like contactless near-field communications (NFC) payment, are adopted voluntarily and are sometimes available only at the request of the consumer.
In “Smart Card,” an article in APEX Experience‘s Technology Issue, Michael Planey writes that the number of credit cards in the market make the process of transition expensive. “The transitional costs to smart cards have been estimated to run into the billions of dollars for banks and retailers,” he writes.
Airline adoption in other markets, Proud says, has been boosted by the common use of chip-and-pin in other markets.
“When we started working with the UK, chip-and-pin technology had already taken a hold in British retail. But in 2009, we really saw that the airlines were pushing to develop the chip-and-pin technology approach, and compliance,” says Proud. “All of them thought it was very important and that’s the direction it went. In the US, we think that transition where people are starting to understand the importance of it, is just happening now.”
Proud says the expense also contributes to adoption delays by airlines, though it is not the only factor.
“When you’re putting a point-of-sale platform on the plane, your consideration is more than just the chip-and-pin aspect of it,” Proud says. “You’re thinking about the function of payment of the point of sale application, how you manage inventory, how you manage the product, how you manage crew. And you’re also thinking about what other features and functions you want on there for the flight attendant to use: tracking information about the plane and maintenance issues, for example. The platform on the plane is not just a point-of-sale terminal. There’s a lot of technology that sits in there.”
Planey makes a similar point in his report for APEX Experience.
“While the handheld terminals used by many cabin crews are easily replaceable, airlines still incur substantial charges for back-office development and employee training,” he writes. “The greater concern, however, is magnetic-stripe readers embedded in seatback in-flight entertainment (IFE) monitors. Those devices are an integral part of the IFE system design at both the hardware and software levels. Airlines will find replacing those systems a far more complex and costly undertaking.”
GuestLogix finds airlines weighing the benefits of chip-and-pin enabled technologies against emerging technologies which could make today’s payment systems seem outdated.
“Part of the challenge is committing to technology when the market is shifting and things like Apple Pay are coming out; Visa Checkout, and many other technologies piggy-backing on chip-and-pin and contactless,” Proud says. “Those kinds of things I think were unsettling. People were saying, ‘If we’re going to spend a lot of money on technology, let’s make sure we spend it on something that’s future-proof.’ Because [airlines] are buying potentially up to 20,000 plus devices for all the flight attendants and crew, if everyone is getting one individually.”
Also driving US airlines’ indecision is the limited risks of keeping existing magnetic strip payment authorization technologies.
“Because most airlines are taking magnetic strip transactions in the US offline, when there’s a decline on board they cannot authorize it,” says Proud. “They’re already at risk for that transaction as a merchant. Saying we’re going to have a liability shift doesn’t really change their risk profile as much as it would for someone who takes online payments. They already have a percentage of declined transactions that they deal with as part of the business.”
The introduction of in-flight connectivity is driving some change, with some airlines authorizing transactions while in the air. But GuestLogix estimates the average transaction in the air at around $12, which Proud says reduces charge-back risks for airlines and which can represent less of a cost than the deployment of new card readers.
Proud says many airlines have been waiting “to decide whether they make the investment at this time, or whether they try one more cycle of the technology (three years) without chip-and-pin.” But the possibility of a mixed deployment could make that decision easier.
“We have a lot of airlines using standalone chip-and-pin devices, and we have sleeves that go on top of off-the-shelf electronic devices,” Proud says. “We have those live as well, where you put the mobile device sleeve on and you’re able to accept chip-and-pin payments. We have the technology available and we’re actively selling it in all markets.”
Online or offline, Proud suggests that airlines could have different payment authorization technologies on board, co-existing during a staged rollout, with no pressure to do a full deployment at once. Some of GuestLogix’s airline customers, have already taken that approach.
“We have a company that has launched with a digital solution we deployed and they also already have a NextGen solution that we deployed, rolling out at the same time,” says Proud. “I think those two solutions can work beside each other, even though one has a higher payment standard and a different level of security. You can decide to go with a NextGen solution and an older solution. You don’t have to do it all in one shot.”