by James Schildknecht / Cellpoint Mobile

MIAMI — For airlines based in (or with service to) Latin America, as well as for those considering new origins and destinations in the region, payment technology is becoming a crucial factor for success and growth.

Payments (and the ability to transact in different countries and currencies) directly impact an airline’s ability to enter new markets, acquire new customers, compete on new routes, capture more connecting passenger traffic (detour routes) and make more hauls to and from Latin America.

The central role of an airline’s payments strategy is perhaps more pronounced in Latin America than other global regions.

A freshly-painted TAM Airbus A320 is positioned outside of the Company’s hangar at Congonhas Airport in São Paulo awaiting the reveal. PHOTO: Daniel Carneiro.

This is because the vast majority of consumers are unbanked or can only make payment outside the international card networks, whether paying with CUPs in Cuba, boletos in Brazil, Cencosud’s local card or PagoEfectivo (a cash solution similar to boletos) in Peru.

Thus, the growing penetration of alternative payment methods (APMs) is becoming the common denominator among all Latin American countries – these APMs are facilitating financial inclusion for Latin American consumers and market access for airlines and other cross-border travel merchants.

Payments – A Precondition for Success in Latin America

Support for alternative payment methods is effectively now a precondition for airlines selling directly to consumers in the region. And this is not to mention foreign travelers and tourists flying in and through Latin America who expect to book flights and purchase ancillaries with Apple Pay, Samsung Pay or China’s Alipay – the more recognizable APMs across the globe.

New payment strategies and solutions will be necessary to drive the expansion of regional airlines throughout Latin America and help global airlines grow their customer base within the region.

This requires long-term vision and investment that starts small with better e-commerce experiences, a faster and more seamless path to purchase and support for local and regional APMs.

Latin America and Commercial Aviation by 2035

As Latin American economies grow and expand into other markets, the opportunity for cross-border ecommerce is huge, particularly for the region’s well-developed travel sector.

The Inter-American Development Bank has identified the “base of the pyramid” in Latin America and the Caribbean (i.e., the region’s emerging consumers) as a $750 billion potential market.

Meanwhile, global demand for air travel is doubling and will reach 7.2 billion passengers by 2035, according to IATA.

Within the next 20 years, airlines operating in Latin America will be serving a total of 658 million passengers versus 313 million today (the region’s airports are undergoing necessary renovation and expansion).

In this Latin American market there are three main airline segments: domestic and regional airlines expanding to new cities and countries, low-cost airlines (LCCs) that need to scale rapidly while staying cost competitive, and global airlines trying to grow their customer base within the region.

For these carriers, having any revenue strategy at all in Latin America means having a well-defined payment strategy: determining which payment methods to support, how to access local acquirers without being local, and how to flexibly add new payment methods as market needs change (or as they enter new markets).

To take just one example, more than 70% of Peruvians lack access to bank accounts, but about 65% have mobile phones.

El Salvador, Paraguay and Honduras also rank among the top 15 markets globally for the number of adults who actively use mobile money, according to GSMA.

In this economic and commercial environment, where the mobile channel is often the only channel, priorities should be clear for airlines in terms of sales and revenue: mobile-first (because mobile is the easiest and most direct sales channel), multi-payment (because payment methods will vary considerably across so many different markets) and multi-PSP (because legacy PSPs take too long for new integrations, cost too much and have too few local and cross-border connections).

Better E-commerce Experiences for Airline Customers

To get started, airlines in Latin America will need payment strategies that complement the larger booking and sales process and differentiate their direct sales channel (website or app) from other airlines and online travel agencies.

Alternative payment methods are not just add-ons that provide more variety for bookers – although they do that – but are integral to the sales funnel and especially the mobile path to purchase.

TAME has four Embraer E-190 and two E-170 in its fleet. Pictured is HC-CGG, delivered in 2007. PHOTO: AUTHOR.

As mobile penetration expands – more than a billion individuals across Latin America will be connected to a mobile network by the end of the decade – more users will be moving from interaction to transaction (progressing from search to purchase) entirely via the mobile device.

For these users, any disconnects or friction in the mobile booking process – whether due to poor UI/UX or issues such as payment page re-directs or rejected cross-border transactions – will result in abandoned carts, transaction drop-outs and lost revenue.

Although there are dozens of mobile money services in Latin America with millions of registered users, each user only has access two one or two of these payment methods (including what is often the primary method, cash).

When they search for flights, it is not a matter of choosing to pay with this or that APM – if their specific payment method is not supported, they simply cannot book through that airline website or app.

They have no readily available alternatives such as users in other regions might have (i.e., credit and debit cards).

If airlines are serious about serving the Latin America market, they will need to operate differently reflective of how consumer payment adoption and behaviors have changed – which means mobile payments have to be a top priority in each market they serve.

When CellPoint Mobile surveyed airline executives responsible for managing revenue in the mobile channel, nearly half (40%) of South American executives said that the availability of more APMs is a key factor in their decision to roll out new payment solutions, a response chosen by less than a quarter (22%) of experts in North America, where mobile investments are likely to be driven by other factors such as customer demographics.

In other words, when Latin American carriers are considering new mobile solutions, their main “pain point” is the ability to support the new payment methods that are growing rapidly across the continent.

Their focus is less on, for example, high-value travelers (such as tourists) who use international credit cards or mainstream mobile wallets from the US, and more on the vast majority of Latin Americans who use boletos or local Brazilian cards like Aura, Elo, and Hipercard.

Other examples in the region include Rapipago (Argentina), OxxO (Mexico) and various local and regional APMs, domestic credit cards and cash.

Payment Service Providers (PSPs) and Latin American Airlines

Payment service providers (PSPs) are playing a central role in the competition between airlines servicing Latin America.

The legacy PSP-Airline relationship, where a single PSP provides new integrations as necessary, has become less workable in a payment environment where new APMs are constantly being developed.

PSP services are becoming too specialized and globally complex for legacy technology vendors, whose organizations are not built for payment scale and flexibility and whose business models depend on legacy revenues from high transaction fees.

Aerolineas Argentinas offers daily flights to Buenos Aires with its A340-313X. PHOTO: AUTHOR.

In fact, PSP services are becoming more like “PSPs-as-a-service” (PaaS) where one PSP platform can provide access, flexibility and control across many local and global payment methods and acquirers, including the ability to route dynamically (in real time) between multiple PSPs for the best transaction fee rates.

Airlines in Latin America will also need PSP partners that can offer not only integrations and connections to new APMs but also offer more competitive rates on every transaction and other value-adds such as fraud and risk management.

The growth and success of air travel in this region is closely connected with the growth and success of new players in the payments space, including mobile money companies and PSPs.

By 2021, smartphone penetration in Latin America will increase from 245 million users today to 290 million.

Image Courtesy of Santiago Narayana

According to the UN, one-fourth of Latin America’s total population is between the ages of 15 and 29.

They are spending their disposable income in a globalized economy where an airline in Colombia can market its products to consumers in Curaçao or China.

Airlines in the region will need to enhance and differentiate their sales channel with the right strategy for mobile payments and the right PSP partners to help execute and increase revenue in the mobile channel.

Payments are too complex a sector for even the largest processors to solve by themselves, especially when you factor in the size of Latin America and its unique “geographies” – physical, cultural, technical and economic.

The region requires strong local partnerships, proficiency with local and regional payment methods and direct connections to local acquirers.

Is your airline built to grow revenue in Latin America while being more flexible, interoperable, cost-effective and scalable in the mobile channel?

Now is the time for Latin America airlines to take a new look at mobile strategies and solutions and how they can cut costs, grow revenue, and ultimately, improve passenger experience by supporting alternative payment methods and making travel easier.