Your SlideShare is downloading. ×
Airline Distribution Panel (Vienna 2009)
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Introducing the official SlideShare app

Stunning, full-screen experience for iPhone and Android

Text the download link to your phone

Standard text messaging rates apply

Airline Distribution Panel (Vienna 2009)

867
views

Published on

Impact of financial crisis onto payments market

Impact of financial crisis onto payments market

Published in: Economy & Finance, Business

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
867
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Airline Distribution 2009 conference Payment and credit risk management 2 April 2009
  • 2. The objective of this payments panel is to discuss payment vs. credit risk in the current environment
    • Background
      • One word has become paramount in the current environment: RISK
      • Examples of such risk
        • Airlines not paid by consumers, corporations, travel agents, banks, etc.
        • Card issuers not paid by consumers or corporations
        • Merchant acquirers paying for un-flown tickets for bankrupt airline
    • The objectives of this payments panel are to discuss questions such as
      • How is the landscape for payments evolving due to the crisis?
      • What are the issues with currently managing payments?
      • How does this vary with geography and airline business models?
      • How are airlines balancing credit risk with costs associated with cards and the implications for cash?
  • 3. How bad is the crisis? $6 trillion in private sector debt must be eliminated (Merrill Lynch)
  • 4. The financial crisis is likely to increase business failures, new payment products and regulatory intervention (among many other effects)
    • Reduced global consumer spending, esp. in overseas travel
    • Increases in prepaid / debit instead of credit cards (esp. US)
    • Reduced confidence / trust in cross-border e-commerce
    Macro- economic
    • Global recession potentially impacting payments volumes
    • Protectionism-slowdown in international trade
    • Business failures -including merchants such as airlines
    Demand-side (consumers) Supply-side (banks)
    • Increased focus on risk
    • Industry consolidation might accelerate
    • Reduced investment in new payment methods, technologies
    Regulatory
    • Regulatory intervention in markets-impact on acquiring model
    • Reversal of trend to non-bank participation in payments?
    POTENTIAL IMPACT OF FINANCIAL CRISIS ONTO PAYMENTS MARKET
  • 5. Example of business failure: First Data’s request for an increase in collateral resulted in Frontier filing for bankruptcy in April 2008
      • Merchant acquirers require some merchants to maintain a reserve in order to mitigate risk of merchant default
        • Usually funded by holding back a certain percentage of credit card receipts they collect
      • Deteriorating economic conditions resulted First Data (Frontier’s acquirer) to take precautionary measures such that it increased Frontier’s collateral requirement from $54.5M to $130M
      • First Data planned to hold back 50% of Frontier’s credit card sales , if Frontier did not meet the higher collateral requirement
      • The increased collateral requirement caused a liquidity crunch for Frontier forcing it to file bankruptcy
      • On April 10, 2008, Frontier filed for Chapter 11 bankruptcy protection
    Source: Company Website; Denver Post; BusinessWeek
  • 6.
      • Frontier’s bankruptcy filing blocked First Data’s plan to hold back 50% of credit-card sales
      • In August 2008, Frontier received $30 million in debtor-in-possession (DIP) 1 funding from Republic Airways, Credit Suisse Securities and AQR Capital, which is due April 1, 2009
      • To refinance its DIP financing that is due on April 1, 2009, Frontier has secured a $40M debtor-in-possession loan from Republic Airways which runs through Dec 2009
      • In return of the DIP refinancing loan, Frontier allowed Republic Airways a stipulated damage claim in the amount of $150 million
      • Frontier's current bankruptcy court deadline to submit a reorganization plan is June 4, 2009; after that, creditors can step in and propose their own plan
      • In February, Frontier Airlines reported an operating profit of $1.5M, its 4th consecutive monthly operating profit ($2.9 million in November, $18.3 million in December and $2.8 million in January)
    1. DIP financing is a special form of financing provided for companies in financial distress or under Chapter 11 bankruptcy process. Usually, this security is more senior than debt, equity, and any other securities issued by a company. Filing for bankruptcy enabled Frontier to make First Data’s increased collateral requirement void and to raise more financing Source: Company Website; Denver Post; BusinessWeek
  • 7. UK: introduction of prepaid card programs In addition to these impacts, will the financial crisis support the emergence of new payment products (e.g., prepaid)?
  • 8. And will debit cards carry on growing faster than credit cards? +8.9% Credit card (other countries) -11.4% Credit card USA Q4 2008 MasterCard volume ($) +18.2% Debit card (other countries) +5.8% Debit card USA
  • 9. Based on a “global payment trends” survey among 320 payments professionals in the US, EU and AP: regulators will be the single greatest influence on the direction of the payments industry Thinking into the future (the next 5 years), in your opinion, what will be the single most influential participant that is likely to have the greatest impact on your market? Source: EDC’s 2008 global payment trends survey Regulators 40% Schemes / associations 12% Financial institutions 10% Merchants 5% Others 29% Service providers 4%
  • 10. SEPA is focused on technical / commercial aspects vs. PSD (Payment Services Directive) that is focused on legal barriers
    • Legislative/political initiative by EU Commission (DG Internal Market)
    • Time line: implementation in national law across EU by Nov 2009 the latest, but varying interpretations across countries
    • Objective: harmonisation of national legislation around payment services (access to payment system, authorised providers)
    • If successful, it will remove any legal barriers to provide payment services across the EU and allow new, non-bank entrants into the payments industry
    • Self-regulatory initiative of banking industry: European Payments Council
    • Objective: harmonisation (incl. inter-operability and standardisation) of major payment instruments (excl. cash and cheques)
    • By end of 2010?
    • Market forces to ultimately drive migration pace and end-user adoption
    • If successful, it will remove any technical and commercial barriers to provide payment services across the EU with economies of scale
    PSD SEPA
  • 11. And not only in Europe
  • 12. Payments panel agenda
    • Introduction by each participant
      • AirPlus – Ina Beringer
      • Edgar, Dunn & Company – Pascal Burg
      • PayPal – Toni Stinton
      • UATP – Scot Bealer
    • Questions & Answers session
      • What’s most different in 2009 vs. 2008 due to the financial crisis and increased focus on credit risk?
      • Where is the largest credit risk: consumers, corporations, banks, other airlines, regulators, etc?
      • How can credit cards and other forms of payment make it better or worse for airlines?
      • Any key learning points so far?
  • 13. Questions for you, the audience!
    • Questions
      • As an airline, do you extend credit (e.g., as a UATP issuer) to your customers?
        • Yes
        • No
      • If you extend credit, have you seen a worsening of default?
        • Yes
        • No
      • As a merchant, do you agree that banks will impose tighter collateral requirements on airlines (e.g., higher reserves)?
        • Yes
        • No
  • 14. Payments panel agenda
    • Introduction by each participant
      • AirPlus – Ina Beringer
      • Edgar, Dunn & Company – Pascal Burg
      • PayPal – Toni Stinton
      • UATP – Scot Bealer
    • Questions & Answers session
      • What’s most different in 2009 vs. 2008 due to the financial crisis and increased focus on credit risk?
      • Where is the largest credit risk: consumers, corporations, banks, other airlines, regulators, etc?
      • How can credit cards and other forms of payment make it better or worse for airlines?
      • Any key learning points so far?
  • 15. Other questions
    • Questions & Answers session
      • Is credit risk really this bad or artificially created by bank issues?
      • How is your company reacting to the increased risk, especially credit risk?
      • What are the best / worst examples of how airlines are reacting to this increased credit risk?
      • Is there a competitive advantage in offering more payment options and/or extending credit during a credit crunch period? And what are key success factors?
      • Are charge-backs / friendly fraud instances increasing and what can be done about it?
      • What are the best / worst examples of how banks are reacting to this increased credit risk? What will be the impact of portfolio sales?
      • What are the best / worst examples of how governments / regulators are reacting to this increased credit risk?
      • Where will this take us over the next 3-4 years?