A new form of direct payment for tickets direct from airline websites has passed its first live test.

The Iata Pay system is being tested by pilot airlines, including Cathay Pacific, SAS and Emirates as carriers seek to cut billions of dollars in card payment costs.

Iata Pay is an initiative to develop a new payment option for consumers when buying a tickets directly from airline websites.

The test transaction was carried out in partnership with UK-based fintech company ipagoo.

It is made possible by the European Commission’s second Payment Services Directive (PSD2), and the UK’s open banking regulation.

The regulations encourage use of direct debit transactions in which payments are made from the customer’s bank account directly into the bank account of the merchant.

This method offers a high level of security to both user and recipient and can be instantaneous, according to Iata.

The advantages to airlines of Iata Pay are:

• Cheaper payment option compared to other alternatives
• Highly secure
• Faster cashflow with instant/near instant payment to the merchant
• Simpler payment process resulting in fewer lost sales.

Benefits to consumers include access to a new, simpler method of payment that is highly secure.

Iata financial and distribution services senior vice president Aleksander Popovich said: “Today’s consumers, and especially millennials, have expectations of multiple payment options including mobile and peer-to-peer. Iata Pay responds to these expectations.

“At the same time, airlines are trying to manage significant card payment costs – $8 billion per year and rising. A large part of this cost is incurred in direct purchases from airline websites.

“One of Iata’s strategic objectives is to support airlines’ financial sustainability including controlling costs.”

Carlos Sanchez, CEO of ipagoo, added: “We are delighted to have completed the first open banking live transaction for the airline industry, helping Iata and its member airlines to achieve their goals of operational and financial efficiency.

“Ipagoo’s technology provides a secure, multi-country banking service for Iata. We are at the forefront of development and innovation within the financial industry and committed to helping businesses and their clients take advantage of the opportunities provided by open banking.”

Iata is also working with Deutsche Bank on a prototype for Europe (excluding the UK), starting with the German market, which is expected to undergo testing in early 2019.

Following this, Iata will validate the concept with the intention to expand to other regions.