USA Technologies Inc (USAT)

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Mobile Payments Bring Revenue And Change To Airline Corporate Finance

May 12, 2017

https://www.forbes.com/sites/forbesfinancecouncil/2017/05/12/mobile-payments-bring-revenue-and-change-to-airline-corporate-finance/#cc7699817c24

Airlines and other travel companies are getting the hang of converting mobile technology and payment innovation into sources of revenue. It’s rare today to find an airline that isn't making money from, say, upgrades and other ancillary purchases made by their smartphone-equipped travelers.

This increasingly reliable revenue stream has caught the attention of travel industry finance executives. It's less clear, however, that finance professionals fully understand the impact of the digital revolution on the finance function itself.

A quick history lesson: Beginning in the '70s, airlines began deploying mainframe computers and, in the mid-'90s, started using the internet to allow passengers to plan travel, purchase tickets and even to access their frequent flier programs. Now the industry is moving — at an uneven speed, to be clear — to a new generation of digital technology that allows for cross-function data sharing, increased process efficiencies and better experiences for passengers.

The pace is picking up as millennials and younger travelers increasingly shape passenger demographics. One survey indicated that nearly 40% spend more time with their smartphones than with family, friends and co-workers. Nearly two-thirds shop on smartphones every day. A 2016 Deloitte global mobile survey headline said it all: "Life’s essentials: Air, water, food, and smartphones."

Consider these trends:

* Global smartphone users are expected to top 6 billion by 2021.

* Global mobile payments are projected to rise from the $620 billion reported in 2016 to more than $1 trillion over the next two years.

* Of the 77% of Americans who use mobile phones, 93% say they use the device for purchases.

If you speak with airline e-commerce or marketing professionals, the above is old news. Airline ancillary revenues approached $70 billion in 2016, with much of that traced to the sale of food and beverages, checked baggage, premium seat assignments, early boarding benefits and so on.

Two Roles For Airline Corporate Finance

While this is (or should be) good news on the revenue side, an airline corporate finance executive still has work to do. In working with airlines and travel-related businesses, I find there are two areas that deserve particular focus by a CFO, treasurer or finance function:

1) Providing oversight and financial discipline to e-commerce and digital marketing efforts across the enterprise.

2) Ensuring that the finance function itself is braced for new payment models in which real-time transactions will affect core finance functions, including cash and risk management.

Just look at how ancillary revenues vary from airline to airline. Some carriers, led by Spirit, make more than $50 per passenger in additional revenue while others make far less. Finance executives should question whether the revenue disparity has to do with something entrenched and hard to change — an airline's business mix, for instance — or something more manageable, such as development of a "retail" selling mentality, deployment of e-commerce resources, or even a proper mix of alternative payment models (APMs), by region. In each instance, corporate finance might become a valuable partner for e-commerce and marketing by encouraging high standards for accounting discipline (including ROI benchmarks) and adequate, cost-effective investment in e-commerce and payment technology.

Finance professionals are aware of new payment technology, of course. Anybody with a smartphone will almost certainly have been exposed to Visa Checkout, PayPal, MobilePay, Apple Pay, Android Pay or any number of mobile or digital wallets. What may be less understood among many finance professionals is the growing impact of financial technology on a corporate finance or treasury function.

As iTreasurer points out, payments have gone from "ho-hum" to being one of the most "potentially valuable parts of our current financial system," with potential impact in three areas of particular interest to a corporate finance function:

* Corporate treasury services

* Treasury processes

* Business models

The Fintech Wave On The Corporate Finance Shore

Although I am part of the fintech wave, and proud of the innovations that we have brought to the payment business, I will be the first to acknowledge that it takes time for the payments ecosystem to sort itself out. I know this to be true here on the front lines where airlines and other travel companies meet their customers. But I also believe this to be true upstream, where CFOs, treasurers and other finance executives must wrestle with the impact of the digital age on cash management, internal and regulatory compliance, and treasury operations.

An airline operating in multiple regions, for example, may allow customers to pay with any payment method, and in multiple regulatory landscapes. If a traveler pays in "real time" instead of with a plastic bank card, would this have an impact on the purchase cycle, and how might that affect receivables management, overall liquidity, or reporting across geographical regions?

EuroFinance's Corporate Treasury Network, in a recent survey of 250 treasurers, found that 36.3% are already using payment services provided by financial technology companies. Of the 63.7% who said no, 64.8% said that they would consider doing so in the future. While the treasurers represented a number of industries in addition to airlines, the survey clearly points to the continued growth of digital payments.

With the airline and travel industry in mind, one particular quote caught my eye.

"How corporates and their partners deal with digitalization," EuroFinance wrote, "will determine whether or not they survive the next decade, and treasurers — and their boards — realize it."

I think the same can be said for many airlines, too.