Op-Ed: Don't Surcharge, Share Card Costs

As the managing director for a leading corporate payment provider, I have an opinion about credit card economics that might surprise you. Most of the discussion in the media and among corporate customers today focuses on what the airlines are doing to pass along card fees. However, a fair debate on this subject would require an understanding of why. Now more than ever, airlines are looking for areas to save costs. So it's logical that distribution and payment would be a part of this savings equation. While I understand the somewhat inequitable card economics, there are smarter ways to leverage the playing field than blanketed surcharging.

I believe the genesis of the merchants' frustration is that the level of fees charged by most cards exceeds the perceived value. It is one of the economic realities that the merchants pay the bill: Their proportion is nearly 90 percent of the total credit card cost. In fact, the cardholder only pays 10 percent. This revenue generated is usually used to fund strategic loyalty building with the customer in the form of rewards, rebates and incentives. What's not always clearly understood in the industry is that not all card companies are alike. Their fees are different, their level of rewards and incentives are different and importantly, their technological capabilities and comprehensive offerings are different. So why should cards all be treated alike?

The new reality is taking shape as I write. In parts of Europe and Asia/Pacific—Hong Kong and Australia, for example—credit card surcharging is already in place. In fact, GDSs in the Netherlands are now technically prepared to handle and display the surcharge fees. This is not simply related to major airlines worldwide, but merchants of every size and category, from low-cost carriers to ferries!

What does this mean for the end user, the cardholder or corporate customer? Certainly regression if they demand that their agencies revert to paper invoices and manual processes. Customers would then be required to work without the benefits of a credit-card-based payment solution to optimize costs and processes related to business travel. They would lose the enhanced invoice data, electronic data integration, global data consolidation and extended payment terms to which they've become accustomed and around which they have built their travel policies and budgets.

Further discussion is developing in the United States, where United Airlines has said it will begin imposing heavy penalties on select travel agencies for continuing to use their merchant contracts after a certain date. These agencies must now become merchants themselves and face higher bond liabilities and bear the credit risk while losing such benefits as improved cash flow.

So why would United in the United States exclude UATP within their decision? Because, as a UATP card issuer and merchant, they are well aware of the benefits the UATP card brings. As the leading issuer of UATP worldwide, AirPlus is the preferred partner of airlines worldwide.

To conclude, airline benefits from card-based payment systems include outsourced invoice processing, reduction of fraud and credit risk, as well as quick and timely settlement. I believe airlines benefit greatly from credit card payments and they are indeed prepared and willing to pay for those benefits, just not at the same scale as they pay today. They simply want to find fair pricing that fits their cost savings objectives.

I believe change is imminent, and we've been assessing and researching this topic for some time. My proposal is a 50 / 50 share of card costs between the merchants and the cardholder or corporate customer. That is a fair allocation of costs. We have proposed that model to airlines and corporate customers alike and their responses are promising. With that in mind, I believe we'll have new credit card economics which are smarter than surcharging.