Airline Payments: A Complex Merchant Payment Ecosystems

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Introduction

Airline payments are among the most complex in the world of commerce. Selling high-value services for future fulfillment, across multiple channels and currencies, airlines require robust infrastructure, tight risk controls, and seamless coordination with partners. This blog post breaks down how airline payments differ from other merchants, covering payment channels, acquirers, PSPs, risk pricing, GDS, and fraudFraud fraud Criminal deception involving unauthorized payments or use of financial credentials. management.

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1. Payment Channels: Online, Offline, and Intermediaries

Channel Type	Examples	MerchantMerchant merchant An individual or business that accepts payments in exchange for goods or services. Type	Payment Flow Summary
Direct Online	Website, Mobile App	Airline	Real-time CNP transactionsTransactions transactions Interactions where value is exchanged for goods or services. via card or walletsWallets wallets See Digital Wallets.
Call Center	Phone bookings	Airline	MO/TO with manual entry or secure payment link
Airport Desk	Counter at airport	Airline	Card-present, terminal-based payments
OTA / Travel Agent	Expedia, Booking.com	OTA or Airline	OTA as merchant or airline via GDS/BSP
GDS Agents	Amadeus, Sabre connected agents	Agent or Airline	BSP cash (agent collects) or BSP card (airline charges)

Note: Reconciliation must map bookings, payments, and ticket numbers across these channels.

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1A. Deep Dive: BSP Cash vs BSP Card

Reference: Learn more at IATA’s official BSP overview: https://www.iata.org/en/services/finance/bsp/

The IATA Billing and SettlementSettlement settlement The process of transferring funds from the issuer to the acquirer. Plan (BSP) enables airlines to collect payments from travel agents worldwide in a unified and regulated manner. Two common models used in BSP-based agency sales are:

Model	Who Charges the Customer?	Who Holds the Funds?	Airline Gets Paid From	Risk Falls On
BSP Cash	Travel Agent	Travel Agent (initially)	Agent → BSP → Airline	Agent
BSP Card	Airline (via card processorProcessor processor A company authorized to process credit and debit card transactions between acquirers and issuers.)	Airline	IssuerIssuer issuer A bank or financial institution that issues payment cards to consumers. Responsible for authorizations and chargebacks. → AcquirerAcquirer acquirer A financial institution or payment processor that manages the merchant account, enabling businesses to accept card payments. Acquirers receive all transactions from the merchant and route them to the appropriate issuing bank. → Airline	Airline (via acquirer)

BSP Cash Explained:

• The travel agent is the merchant of record.
• The agent collects funds from the customer (cash, bank transfer, or even card via their own terminal).
• Funds are remitted by the agent to BSP, which consolidates and forwards payment to the airline during the next settlement cycle.
• Agent holds the risk—if the customer cancels or chargebacks, the agent is responsible.

BSP Card Explained:

• The airline is the merchant of record.
• The agent collects and forwards the customer’s card details to the airline (usually via GDS).
• The airline processes the card and gets paid directly through its acquiring bank.
• BSP logs the ticket and transaction for industry reconciliation.
• Airline holds the risk—the card network chargebackChargeback chargeback A dispute raised by the cardholder that results in reversal of a transaction. Can lead to penalties for merchants. rules apply to the airline.

Why It Matters:

• BSP Cash gives the airline a delayed, guaranteed settlement with lower fraud risk.
• BSP Card provides faster payment and direct acquirer control but exposes the airline to payment risk.
• Airlines prefer BSP Card for high-value tickets or markets where agent reliability is low.
• Agents prefer BSP Cash when they want control of commissions, refunds, and customer relationships.

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2. Accepted Payment Methods (APMs and Cards)

Category	Examples	Usage in Airlines	Settlement Model
Global Card Schemes	VisaVisa visa A leading global payment technology company connecting consumers, businesses, and banks., MastercardMasterCard mastercard A global payments network enabling electronic transactions between banks, merchants, and cardholders., Amex, JCB	90%+ airlines accept	Daily/rolling, may include holdbacks
UATP (B2B)	Airline-owned network	Used for corporate travel	Billed monthly
Digital WalletsDigital Wallets digital-wallets Applications or platforms (like Apple Pay, Google Pay) that store payment card data securely and allow users to pay digitally.	Apple Pay, PayPal, Google Pay	Growing share on mobile/web	Via PSPs or direct
Local Bank Transfers	iDEAL, POLi, UPI, SOFORT	Common in local markets	Push-payments, near instant
BNPL & Installments	Affirm, Klarna, Uplift, Zip	Installment adoption rising	BNPL pays airline upfront
Cash/Voucher	Airport desk, offline stores	Declining, but used in some regions	Manual reconciliation

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3. Role of Acquirers, PSPs, and Payment Infrastructure

Role	Function
Acquirer	Settles card payments, bears chargeback risk, may require reserves
PSP/GatewayGateway gateway A service that authorizes and processes card payments for online merchants. Examples include Stripe, Adyen, and PayPal.	Technical layer for card, APM, and BNPL processing (e.g., Worldpay, Adyen)
Payment Orchestrator	Routes payments intelligently, load balances, improves auth rates
Airline Payment Ops	Manages tokens, fraud tools, reconciliation, cashflow optimization

Comparison: Airlines often work with multiple acquirers and PSPs vs single-vendor setups in typical e-commerce.

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4. Airline Settlement Flow and Delays

Payment Type	Typical Time to Settle	Comments
Credit/Debit Cards	T+1 to T+7 (or longer with holdback)	Holdbacks for flight risk; varies by acquirer and airline profile
BSP/ARC Cash	2–4 weeks post-ticketing	Aggregated settlement through GDS and IATA BSP clearinghouse
Bank Transfers	Instant to T+2	Lower fraud risk, growing in popularity
BNPL	T+1 to T+5	BNPL provider pays upfront, assumes collection risk
UATP	Monthly invoicing	Lower fees than cards, used for corporates

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5. Risk Management and Pricing

Component	Airline Risk Position
Future Delivery Risk	High – tickets sold months in advance
Chargeback Exposure	High for cancellations or bankruptcy; acquirers may enforce holdbacks
Merchant Category Code	4511 (Airlines) – subject to higher scrutiny
Interchange & Scheme Fees	Varies by geography; subject to regulation in EU, AU, capped in some regions
Acquirer Markup	Negotiated – 0.15% to 1.2% depending on risk and volume
Total MDR (Card Costs)	1.5%–3% for cards, 0.5%–1.5% for wallets and bank transfers
Reserve/Holdback %	5%–50%+ of ticket value depending on airline health and acquirer confidence

Note: Airlines actively pursue cost savings via IATA Pay, direct debit, and multi-acquirer routing.

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6. GDS Influence on Payment Flows

Reference: Visit the Amadeus GDS platform for airlines: https://amadeus.com/en/industries/airlines

GDS Role	Description
Inventory Aggregation	Amadeus, Sabre, Travelport distribute flight inventory to agents
Form of Payment CaptureCapture capture The act of finalizing an authorized payment. Funds are transferred from the cardholder’s account to the merchant.	Captures card or cash choice, routes it to airline or BSP
BSP Integration	Generates billing files and remittance schedules for agent sales
Tokenization and SecuritySecurity security Measures used to protect transaction data from fraud and cyber threats.	PCI DSS compliant, some tokenize data before sharing with airline systems
Virtual Cards from OTAs	Used by large OTAs to pay airlines via one-time-use cards

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7. Fraud Prevention Tactics

Reference: Learn more about IATA Perseuss fraud prevention: https://www.iata.org/en/services/finance/perseuss/

Strategy	Description
3D Secure	Dynamic authenticationAuthentication authentication A security process used to verify the identity of the user or cardholder. May involve passwords, biometrics, OTPs (one-time passwords), or 3-D Secure. shifts fraud liability to issuer
Fraud Engines & ML	Real-time screening, custom airline models
Consortium Data (Perseuss)	Shared blacklists and risk intelligence with other carriers
Manual Review Teams	For last-minute and high-risk bookings
Post-ticketing Checks	Holds or cancels ticket issuance pending fraud validation

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8. Refunds, Chargebacks, and Interlining

Aspect	Airline Approach
Refunds	Initiated by airline or agent; may take 5–30 days depending on method
Chargebacks	Airlines collect boarding data to dispute “service not rendered” claims
Interlining	Validating airline pays partners post-travel via IATA ClearingClearing clearing The exchange of financial information and instructions between acquirers and issuers to facilitate settlement. House
Codeshare Settlements	Revenue shared per commercial agreement or ICH netting
UATP	Corporate account settlement via billing, not card networks

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9. What Happens When an Airline Goes Bankrupt?

Example Case: Read the BBC report on the Thomas Cook collapse and its customer refunds: https://www.bbc.com/news/business-49795094

Airline bankruptcies have far-reaching impacts on the payments ecosystem due to the advance purchase nature of tickets. Here’s how different parties are affected:

Stakeholder	Impact During Bankruptcy
Cardholders	May lose ticket value. Can dispute via chargeback if airline fails to deliver. Issuers usually refund under “service not rendered.”
Travel Agents	Often caught in between. If they collected payment (BSP cash), they are liable to refund. If airline collected (BSP card), agents are not financially liable but face customer complaints.
Acquirers	High exposure. Must refund cardholders and bear the loss unless they had reserves/guarantees. May freeze remaining payouts.
OTAs / Platforms	May lose prepayments to airline. Need to rebook affected customers or refund using their own funds.
GDS/BSP	Suspend ticketing authority for the airline. Stop settlement flows and initiate recovery from bond or default insurance (if any).

Industry Safeguards:

• Acquirer Holdbacks: Acquirers often retain 10–50% of sales in reserve to cover refund liability.
• Bank Guarantees: Some airlines are required to post a financial guarantee to continue accepting cards.
• BSP Security Measures: Agents must provide bonds; BSP may hold collateral from financially weak airlines.
• Insurance Programs: Some OTAs and TMCs insure against airline default risk.

Example: When Thomas Cook collapsed in 2019, acquirers lost millions, and many customers were refunded via chargebacks. Future sales to struggling airlines often get flagged early, and payment partners restrict exposure accordingly.

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Airline vs Retail Merchant: Key Differences

Feature	Airlines	Retail/E-commerce Merchants
Risk Profile	High – future delivery	Low – immediate delivery
Fraud Exposure	High – global bookings, resale risk	Moderate – primarily CNP
Settlement Lag	Yes – holdbacks, BSP cycles	Typically T+1 or T+2
Payment Methods Diversity	Very high – global APMs, wallets, UATP	Low to moderate
Pricing Negotiation	Complex, volume-based, with reserves	Simpler flat-rate pricing
Reconciliation Complex	Very – GDS, BSP, ticket coupons, interline	Simple – SKU and payment ID

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Conclusion

Airline payments require deep specialization, from handling delayed delivery risk to managing multi-party settlements and high-value fraud scenarios. Airlines invest in orchestration, tokenization, and multi-acquirer setups to gain control over pricing, performance, and user experience. GDS, BSP, and industry-wide standards add layers of complexity unseen in other sectors.

Payments leaders in travel must understand not just technology, but the strategic, financial, and regulatory contextaround these flows to optimize margins and reduce exposure.

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