Emirates Subtly Wages War On Credit Card Fees

Emirates Subtly Wages War On Credit Card Fees

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Emirates has just launched a new payment option for customers, which could have major implications.

Emirates Pay, new account-based payment method

Emirates has just introduced Emirates Pay for customers in Germany and the United Kingdom, with plans to expand this to other countries soon. This is a new account-based payment method for purchasing airline tickets via emirates.com.

This is a white-label solution that was jointly developed by the International Air Transport Association (IATA) and Deutsche Bank. This is intended to be an alternative payment method for travelers looking to pay for airline tickets by having their bank accounts debited in real time.

The way it works, Emirates will provide all the necessary account and payment information, and passengers will approve the payment initiation in a convenient way via their online or mobile banking.

As the benefits of this are described:

  • This allows airlines a significantly more economical way to process transactions, with faster settlement times, supporting enhanced airline liquidity and reduced payment fraud
  • This allows customers to “address the demand for more secure and frictionless payment options, including account-to-account payments, for which a card is not required

As it stands, 60-70% of Emirates flights are paid for by credit card, while the remainder are paid for with country-specific payment options. Emirates is considering eventually incentivizing customers to use this payment option, and could offer perks like a bigger luggage allowance, an upgrade to seats with more legroom, or even special fares that can only be booked with Emirates Pay.

Currently 60-70% of Emirates tickets are paid for by credit card

Why this has the potential to be major

Emirates’ motive here is pretty clear — on average, credit card transaction fees are somewhere around 1-3%, with a company like Emirates probably paying on the lower end of that. That doesn’t even account for credit card fraud, disputed transactions, etc. Meanwhile the new Emirates Pay system only costs Emirates a few cents per transaction, with much less risk of fraud and disputed transactions.

While 1-3% may not sound like a lot, this could be significant. For example, in the 2019-2020 fiscal year, Emirates had revenue of $28.3 billion, and profit of $456 million. Even if Emirates only paid an average of 1% of revenue in credit card fees, that could be up to $283 million per year. If Emirates could eliminate that, the Dubai-based carrier’s profit margin could increase by more than 50%. Yep, all just by changing the way that people pay.

The motivation here is pretty clear, particularly for companies as low margin as airlines, where the profit margin may not be much more than the average amount of credit card fees the company is paying.

Reducing credit card fees could save Emirates hundreds of millions

My take on Emirates Pay

More payment options are always a good thing, and that’s the case here as well. Emirates flies to all kinds of markets where credit cards aren’t commonplace, which is why 30-40% of tickets aren’t paid for with credit cards.

That being said:

  • For those with access to credit cards, paying with them is a no brainer — you have the ability to dispute charges, you often have travel coverage with premium cards, and you can earn points (some cards even offer 5x points on airfare purchases, which is a fantastic return on spending)
  • I hope we don’t see airlines penalize those who choose to pay by credit card in a significant way; I’m fine with the option being there, but I hope we don’t see extra charges to use credit cards, and/or the lowest fares made available exclusively to those paying with this new option
  • Then again, I suppose it wouldn’t be completely unreasonable if airlines did significantly incentivize this; it is definitely lower cost and better for them financially, so is it totally unfair if they create policies that reflect that?
  • I don’t think we’ll see this become very widespread among airlines in the United States, given that co-brand credit card agreements are worth billions of dollars per year to major airlines; they have an incentive to continue encouraging people to be engaged in travel credit cards
I don’t think this will catch on in the United States in a negative way

Bottom line

Emirates Pay is Emirates’ new payment option, which has been in the pipeline for quite a long time. The Dubai-based carrier is the first airline to introduce this option, which was developed by IATA and Deutsche Bank.

Ultimately I think this is perfectly fine as an additional payment option, especially when you consider that credit cards aren’t widespread in all parts of the world. That being said, I don’t love the general precedent this sets, given the clear motive that airlines have here. That’s especially true when you consider that IATA, which is an airline trade group representing most global airlines, is behind this. This is about reducing costs for airlines more than anything else.

What do you make of this development?

Conversations (36)
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  1. NSL

    This is a move to place all risk on consumers by eliminate the only major protection we have when there is trouble, the credit card company/bank. If we pay Emirates directly, we are at their mercy if they cancel a flight or have a major delay and we want our money back.

    I will continue to pay for my air travel with credit cards. If Emirates doesn't like that, they will make do without my business.

  2. ADP

    The customer-credit card-merchant Mexican standoff is resolute in that all sides win something and lose something - in offering this method, Emirates would like to have the benefit of guaranteed payment while minimizing the cost of that guarantee.

    As others have mentioned, the risk trade-off falls entirely on the customer - especially a service that is buy now and use later. Will Emirates only charge the payment right prior to the flight leg, or will...

    The customer-credit card-merchant Mexican standoff is resolute in that all sides win something and lose something - in offering this method, Emirates would like to have the benefit of guaranteed payment while minimizing the cost of that guarantee.

    As others have mentioned, the risk trade-off falls entirely on the customer - especially a service that is buy now and use later. Will Emirates only charge the payment right prior to the flight leg, or will they still have the benefit of a "free loan?"

    There is huge demand for escrow-like on-demand credit even in societies that are currently predominantly instant-transfer based.

  3. Lakesider

    All depends on the incentives offered because they have to compensate for the loss of credit card protection and credit card reward points.

  4. John

    I agree. Making a Cryptocurrency would’ve been a lot smarter.

    1. ADP

      They already have their own currency in the form of miles, which every airline these days is selling at a discount or with a bonus - a non-refundable sale, at that. They could run their miles plan on a centralized crypto platform, but what value would it be to the end user?

  5. Bob

    Seeing how airlines can't even get their own reservations system in order how am I going to have any kind of faith in their payments system. I'm sure people will use it if the ticket price is even 5 pct cheaper but when there is a problem that discount won't be worth the hassle.

  6. Alan

    Many low cost airlines around the world already do this so it is really nothing new. For really cheap fares, I can see many wanting to simply avoid the extra fees, but I am one who wants the protection a credit card offers.

  7. Norm

    Yes. If Air Canada went for this you would need to avoid them.

  8. Poms

    Chase is SO right. They save money and I...? What exactly do I get? I can deal with credit card company or AA or UAL directly? I'm doomed.

  9. Tom Smith

    Who would give an airline access to their back account?!?!?!?!

    Talk about a terrible idea!!!!

  10. scottz95

    This sounds like POLi in Australia. It uses a screen scraping style service to process the transaction after the customer logs in and names which bank account they want to pay from. I’d guess the uptake has not been good on this as it requires a customer to input their online banking credentials as part of a payment flow on an airlines website which to most, stinks of a security and fraud risk. Many of...

    This sounds like POLi in Australia. It uses a screen scraping style service to process the transaction after the customer logs in and names which bank account they want to pay from. I’d guess the uptake has not been good on this as it requires a customer to input their online banking credentials as part of a payment flow on an airlines website which to most, stinks of a security and fraud risk. Many of the banks here also would block payments made by this method given the elevated risk it poses to customers who might’ve been phished.

    In fairness, Australia already pays the debit/credit card surcharges on airfares and nobody really complains. If we didn’t have to, we wouldn’t but it’s legally permitted so all the airlines in the Australian market do it (even if overseas, they don’t). The lower cost option is PayPal but many banks won’t award travel-related points benefits on PayPal settled airfares.

  11. Sam

    I'm surprised that this method is only getting coverage now. Isn't this the 'Sofort Überweisung' type of payment we've had in Germany for a couple of years now?

    Lufthansa already uses this payment method.
    It works just like you're withdrawing cash from an ATM where you enter a pin online etc. I never use this method as i prefer to use credit cards for points, refunds and travel insurance when paying for flights with LH.

  12. Chris

    Sorry - I didn’t mean to reply to Nate. Struggling with the new interface!

  13. guisun

    In principle, it's never a good idea to allow any company to have direct payment over your cash account. Credit card company kind acts like as an escrow. Allowing Emirates to have access to your cash/checking account means, you loose charge back option, in case they screw you over, or protection from fraudulent charges. I don't even use debit card, except for ATM withdrawal, because debit card has less protection than credit cards.

    The fact...

    In principle, it's never a good idea to allow any company to have direct payment over your cash account. Credit card company kind acts like as an escrow. Allowing Emirates to have access to your cash/checking account means, you loose charge back option, in case they screw you over, or protection from fraudulent charges. I don't even use debit card, except for ATM withdrawal, because debit card has less protection than credit cards.

    The fact that they don't mention anything about security and fraud protections is very telling.

  14. iv

    I would NEVER use this payment method because if it were not for my credit card I would have never gotten my money back for cancelled flights during covid - CHARGE-BACK BABY!

    1. Nate nate

      So effectively you are using your credit card as "insurance". Should this insurance be free?

    2. iv

      No the insurance isn’t free… I’m charged an annual fee on my credit card.

  15. Jay

    How is this any different than gas stations in the US offering a lower price for those using cash? Transaction costs are have a serious impact in businesses with thin margins and I don't blame them at all for finding ways to reduce the cost.

    1. iv

      BIG! HUGE! - At a gas station you can pay cash and get the product/service on the spot. Airlines can keep your money for your future flight that may or may not operate and if it does they can deny you boarding for being over-sold.

  16. Abey

    American society is based on debt, hence why this will never happen here. But good for them !

    1. Luke

      And the OMAAT society and other similar sites are based on leveraging credit cards for maximum benefits return, and isn't debt since we all pay off our balances in full each month right?

    2. guisun

      Agreed. I don't know anyone in the travel credit card game that use it as credit card. We all use is charge card.

    3. Steve

      And every other country their society is based on fraud and stealing. Why would anyone ever pay directly from your own bank account and willingly give every company and every hacker on earth access to your bank account and routing numbers haha.

    4. Mh

      Just as paypal launched itself as an intermediary so the merchant doesn't see your credit card number, I'd expect this works similarly that you log in yourself and the company doesn't see your bank details. This has been done elsewhere.

    5. Grey

      What is someone going to do with your bank account details? They are not particularly sensitive data. It is pretty common for debit cards to have the bank account details on them. If someone can take money from your account with just your account details, you should probably find a better bank...

    6. guisun

      ???
      There are many direct payment forms in existence in US for a LONG time. ACH, EFT, etc...

  17. Never In Doubt

    This (and any potential discounts) threatens no one except credit card issuers/processors/networks.

    Why not let people choose what they prefer depending on their personal circumstances?

    1. Mh

      Seems it threatens the consumers and passengers as well.

      As when companies have dominance and power as they do by their size compared to the individual consumer, they have a habit of discouraging or removing things not in the interest. So when they remove, or increase a credit card fee to say 5% (as they have done in the past), what then of letting "people choose what they prefer depending on their personal circumstances?"

  18. Chase

    What I would say is the HUGE red flag here is that the consumer is taking ALL of the risk in the transaction with this method. It is ALWAYS better to have a middleman credit card company in between yourself and merchants, especially in such a volatile industry such as airlines and all the games they play after they have people's money. This is just a terrible idea from a consumer's standpoint.

    Just imagine using...

    What I would say is the HUGE red flag here is that the consumer is taking ALL of the risk in the transaction with this method. It is ALWAYS better to have a middleman credit card company in between yourself and merchants, especially in such a volatile industry such as airlines and all the games they play after they have people's money. This is just a terrible idea from a consumer's standpoint.

    Just imagine using this payment method booking Air Canada...may God have mercy on you.

    1. Never In Doubt

      In many countries, paying electronically direct from your bank account is far more common than it is in the US.

      There are benefits to paying by credit card, but there are costs as well (most/all of which are hidden from the consumer in the US).

      Why should those costs be born by everyone? Instead of just those who choose to pay by credit card?

    2. John

      Thanks for pointing out this fact, this is exactly what I was about to say. And to re-iterate, this 'direct deposit' (a.k.a. direct payment) option has been used in many countries for literally decades. I've used it since 2000, even before I got my first credit card. So it's not some new-fangled, riskier payment option suddenly cooked up by Emirates and Deutsche Bank! Quite the opposite, actually: it's an 'old school' payment concept that keeps...

      Thanks for pointing out this fact, this is exactly what I was about to say. And to re-iterate, this 'direct deposit' (a.k.a. direct payment) option has been used in many countries for literally decades. I've used it since 2000, even before I got my first credit card. So it's not some new-fangled, riskier payment option suddenly cooked up by Emirates and Deutsche Bank! Quite the opposite, actually: it's an 'old school' payment concept that keeps working. What I'm genuinely surprised about is that some people here are shocked and appear to not to have known about this...(!)

  19. Nate nate

    If its reduce costs to the airlines, why shouldn't airlines make their lowest fares available only to those who select this new payment option. Its like Basic Economy -- buyers can pick whether the perks of credit card payments are worth the additional expense, and that analysis may be different for buyers in parts of the world where credit card rewards are less generous.

    You mention that there is an inherent conflict IATA is...

    If its reduce costs to the airlines, why shouldn't airlines make their lowest fares available only to those who select this new payment option. Its like Basic Economy -- buyers can pick whether the perks of credit card payments are worth the additional expense, and that analysis may be different for buyers in parts of the world where credit card rewards are less generous.

    You mention that there is an inherent conflict IATA is an airline trade group, but isn't there also a conflict as you make revenue from credit card application referral fees?

    1. Chris

      Ben - interchange fees on credit card transactions are capped at 0.3% by EU law, so - even with acquirer margin and card scheme fees on top - the average total fees paid in the EU are much less than 1%. Obviously your points hold good in most parts of the world, but not for Germany.

    2. Charlie

      Exactly! And the UK has the same, given that it adopted the EU regulation pre-Brexit.
      So those 2 countries seems like odd places to try something like this.
      I know culturally, Germans are not fond of payment cards so it might be a way to make paying Emirates easier for those people. But difficult to see how that would be a good motivation…

  20. bangkokiscool

    You mean 456 million, not billion, in profit, right?

Featured Comments Load all 36 comments Most helpful comments ( as chosen by the OMAAT community ).

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Luke

And the OMAAT society and other similar sites are based on leveraging credit cards for maximum benefits return, and isn't debt since we all pay off our balances in full each month right?

Chase

What I would say is the HUGE red flag here is that the consumer is taking ALL of the risk in the transaction with this method. It is ALWAYS better to have a middleman credit card company in between yourself and merchants, especially in such a volatile industry such as airlines and all the games they play after they have people's money. This is just a terrible idea from a consumer's standpoint. Just imagine using this payment method booking Air Canada...may God have mercy on you.

iv

I would NEVER use this payment method because if it were not for my credit card I would have never gotten my money back for cancelled flights during covid - CHARGE-BACK BABY!

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