IATA is not a 4 letter word

THE International Air Transport Association is currently undertaking a global rollout of the most radical shake-up of the airline payments ecosystem in almost 50 years. Australia is in the next wave of deployment for the so-called NewGenISS platform, which will be implemented locally before the end of 2018. Bruce Piper looks behind the scenes at what this momentous change means for the Australian travel sector.

The numbers involved are staggering. In 2017 IATA’s Billing and Settlement Plan and other facilities processed more than US$326 billion in transactions, enabling the issue of millions of tickets to literally keep the global traveller community flying. But the systems currently in use launched in the early 1970s, and the world has changed a lot since then. The rise of new technology and the evolving industry landscape has seen IATA undertake a huge amount of work to create the New Generation of IATA Settlement Systems, or NewGenISS. There are massive implications for IATA-accredited agencies, and Jayson Westbury, head of the Australian Federation of Travel Agents, has been fighting the good fight on behalf of agents globally in IATA’s key offices in Madrid and Singapore to minimise the disruption and limit the impact of unintended consequences of the changes.

IATA, as the representative body for the vast majority of the world’s airlines, is often seen as being at loggerheads with the interests of travel agents. In fact, however, there’s a pragmatic recognition of the key role the third party distribution network plays globally, and NewGenISS, along with other innovations such as IATA’s New Distribution Capability (NDC), actually creates significant opportunities for the agency community. The key is to understand the changes and be ready for them, because like it or not, they are coming to Australia in the third week of November this year.

Transparency in Payments

In the end, it’s all about payments. To lay the groundwork, in parallel with the introduction of NewGenISS, IATA has launched an initiative called Transparency in Payments or TIP. The Billing and Settlement Plan, which covers cash settlements from agency bank accounts, is actually a highly efficient system, estimated to only cost about US$240 for every million dollars in sales — or 0.024%. By contrast if agents use credit cards for settlements IATA claims these costs will skyrocket to 2.9% — or $29,000 per million dollars — so it’s not as simple as just allowing solutions such as dynamically generated credit card Virtual Account Numbers. The Transparency in Payments initiative enables all forms of payments — including agents’ own credit cards — but ensures the costs are made clear, while airlines are newly empowered to set individual commercial policies for the methods used.

During the recent IATA AGM in Sydney, the organisation’s ceo Alexandre de Juniac noted that since TIP was launched last year, significant competition had emerged among payment providers, leading to price drops in a range of products. IATA is also undertaking a pilot program with German financial institution Deutsche Bank and an innovative company called ipagoo. “Regulatory changes in Europe have made possible instant payments directly from a customer’s bank account to the airline,” de Juniac said, noting that several European carriers are already using such a system. “If successful, our pilot program will create an industry service that will potentially benefit all airlines,” he said.

Also new on the payment front is an option called IATA EasyPay — essentially enabling pre-payment in the form of an electronic wallet into which agents can pre-deposit funds. Single-use IATA EasyPay numbers can be entered into GDS during ticket issuance, and if there are sufficient funds available in the e-wallet they will be transferred to the BSP and settled to the airlines.

Accreditation

The key change under NewGenISS is the introduction of three levels of IATA accreditation — replacing the longstanding “one size fits all” arrangement. Because the issuing of airline tickets involves the provision of credit to IATA agencies, the accreditation process aims to ensure their credit-worthiness by imposing Local Financial Criteria, or LFC. That generally means agency accounts must be audited, and in some cases a bond must be lodged, to provide confidence for airlines when dealing with agents that they will be paid for the tickets issued. Currently in Australia there are 525 accredited head office locations under these arrangements.

NewGenISS maintains this existing type of accreditation, which is described as “GoStandard”. GoStandard applies to agents operating in a single country, and requires agents to comply with the LFC of the countries in which they operate, and undergo annual financial reviews. These agents have access to all of the BSP forms of payment including cash, client credit cards as well as IATA EasyPay.

To assist large agencies — generally TMCs — operating in multiple jurisdictions, NewGenISS has introduced “GoGlobal” accreditation — a one-stop solution which covers multiple BSPs. Multi-country agents are required to meet a single global set of requirements and criteria, and can accredit all their locations worldwide under a single Passenger Sales Agency Agreement.

The third type of accreditation offered under NewGenISS is called “GoLite”. This innovative solution offers a new option for agents that do not require access to cash sales and who ticket only using credit cards or IATA EasyPay. The financial requirements for GoLite agents are minimal, because there is limited risk so the accreditation process is much less rigorous.

AFTA ceo Westbury believes this could provide a realistic option for many existing IATA agents, particularly those with a significant proportion of corporate clients. “A lot of the mid-size TMCs that remain IATA accredited would have anywhere between 70% and 85% of their transactions going across on the customer’s credit card,” according to Westbury. “So what that means is, for the other 15% they are currently ensnared in this archaic accreditation process that requires them to have audited accounts, requires them to potentially post a guarantee and so on. The introduction of Transparency in Payments in the Australian BSP could allow alternative transfer methods, meaning a corporate TMC could go with IATA GoLite and give up its auditing and any bond requirements,” he said, noting that customer credit cards would be used for the majority of transactions, with alternate methods — such as the agent’s own credit card where permitted — for transactions currently settled using BSP cash.

Remittance Holding Capacity

The other key plank of NewGenISS is the Remittance Holding Capacity or RHC — an IATA term for what is essentially a travel agency credit limit. The RHC uses a formula based on the agency’s three largest billing weeks in the previous year, adding them together, dividing by three and multiplying by 100. That basically means in a single week agents can issue tickets worth up to roughly double their largest previous weekly turnover. Once that limit is reached, the agent’s ability to settle to BSP cash is turned off. IATA noted that airlines lose millions of dollars annually as a result of agent defaults in the BSP, and until now there had been “no effective mechanism to limit airlines’ risk exposure”.

 

“The RHC is a key feature of the risk management framework under NewGen ISS,” IATA said, with the credit limit applying to all agents with access to cash as a form of payment in the BSP. The three major GDS providers — Amadeus, Travelport and Sabre — have all implemented the necessary functionality to allow IATA to switch off the ability to ticket to cash settlements for the agent.

Teething problems

Despite lofty aspirations and a huge amount of investment, the initial rollout of NewGenISS hasn’t been as smooth as promised. NewGen ISS has seen IATA create a new Global Delivery Centre (GDC) operating around the clock in four locations: Madrid, Beijing, Montreal and Singapore. De Juniac described it as a “massive change, impacting about a quarter of our total staff”. And now that the GDC is up and running, NewGenISS is being progressively rolled out in a series of “waves” forecast to be completed in early 2020.

 

“Wave 1” countries, where the system started to be deployed in March this year, included Canada, Norway, Singapore, Iceland, Denmark, Sweden and Finland. Australia is part of “wave 2” after concerted lobbying by Westbury who pushed hard for the local market to not be part of the initial implementation. And that has definitely been to the benefit of Australian agents who have so far been insulated from some of the consequences of the system. Despite IATA’s assurances that things are running smoothly, there have been several major glitches, including one instance where a Canadian agency had its ticketing authority completely turned off — rather than just its ability to settle to BSP cash — while servicing the requirements of a large group booking because it had reached the Remittance Holding Capacity limit. Despite procedures requiring agencies to be notified as they approach the cap so other arrangements can be made, in this case the tap was simply turned off late on a Thursday afternoon, with the agent in question ending up having to issue the tickets with payment on his own credit card through a third party consolidator. Questionable retrospective elements of the GoStandard accreditation scheme have also reportedly seen hundreds of agencies required to post bonds, where previously they had been exempted.

IATA has “demonstrated an incapacity to make NewGenISS happen successfully in their wave 1 markets,” Westbury said, adding that the agency community globally remains gravely concerned about how well IATA can implement the new systems after the “disastrous” first wave. Westbury also noted that Australia is one of the most successful BSPs in the world, with not a single cent of airline moneys lost to agent default in the last three years. Similarly in wave 1 market Norway there has not been an agent collapse for a decade, with Westbury saying some aspects of IATA’s new systems are “like an outsider interfering in a perfect marriage” by upsetting existing strong and robust relationships between agents and airlines in these markets. He also noted the imbalance of the relationship, with IATA strenuously protecting itself from agent default, while a succession of airline failures in recent years have in many cases left agents holding the bag. “One of the key failings of NewGenISS from our perspective is they have wrapped the travel agents up in shackles because they are so worried about them going broke, and yet every time an airline goes broke it seems to be OK,” he fumed.

Questioned about the teething problem with NewGenISS, IATA chief de Juniac was dismissive of the issues, telling travelBulletin: “now it works perfectly well”. Only time will tell.

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