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In-flight scammers cost airlines $1bn a year. Trinity’s Dr Hitesh Tewari thinks cryptocurrency could be the passport to better protection.
Long gone are the days when airlines used to offer passengers complimentary snacks and drinks on short-haul flights. These days most of us hopping over to Europe are accustomed to purchasing food and drink on board the aircraft.
When this practice was first rolled out in the noughties by the low-cost carriers, they mostly accepted cash as a form of payment. Over the next decade, more and more of those transactions became electronic as the use of credit cards and digital wallets became more prevalent. Since the Covid-19 pandemic, many airlines have totally stopped accepting cash and will only accept an electronic payment in exchange for goods and services, because it simplifies the transaction process. More importantly, it speeds up the selling of goods and services and the reconciliation of funds at the end of the flight, thereby making the whole operation much more efficient and cost-effective from the airline’s point of view.
Fraud at 35,000ft
However, all this efficiency comes at a cost! The International Air Transport Association (IATA) estimates payment fraud cost the industry $1bn in 2020. In particular, in-flight fraud is carried out using counterfeit, stolen, expired or prepaid payment cards with zero balance. Fraudsters purchase duty-free products, aware that onboard payment terminals are offline, and no authorisation request can be carried out. The goods are then re-sold at a markup.
The revised Payment Services Directive (PSD2) came into place as a new EU regulation in 2019. PSD2 tackles fraud by introducing strong security requirements for all electronic payments, and this is where strong customer authentication (SCA) comes in.
SCA is an authentication process that validates the identity of the user of an electronic payment service or transaction. Customers must provide two or more elements of knowledge (password or PIN), possession (mobile phone) or inherence (biometric) when making payments.
However, all these wonderful security measures are literally thrown out of the airplane window when you are at 35,000 feet.
Since there is no internet connectivity in the air at that height, there is no way to authenticate the payment transaction, and the airline has to take all of the risk of handing over goods and services to a passenger without knowing whether or not they will get paid for the same.
It is only when the plane lands and the transactions that were captured in flight are sent to the acquirer (the merchant’s bank), will the airline know if any of the transactions were fraudulent. This is a slow process and by that time the fraudsters will be long gone with very little recourse to recovering the lost funds.
One proposed solution to tackle this issue is for the airplane to have internet connectivity via satellite links or ground stations. These connections are inherently slow due to the distances the signal has to travel and the wireless technologies involved. This in turn slows down the overall payment transaction process, thereby making it less efficient for the airlines. To date the roll-out of such internet technology for both airlines and their customers has been painfully slow, with very few carriers offering WiFi connectivity in the air.
A crypto alliance
However, there is a possible solution that has not been considered by the airline industry to date, and that is the use of ‘crypto tokens’. Imagine a crypto token that is minted and transacted by an airline alliance such as the Star Alliance or One World, where all of the member airlines help in securing in-flight transactions on the blockchain, and one which acts as a ledger of truth for them.
Fliers would purchase the tokens using traditional payment mechanisms such as a credit/debit card transaction prior to the flight and store the tokens in a secure digital wallet issued by the alliance which is installed as an app on their mobile phone. These tokens could be used on any of the partner airlines thereby making them more functional for the frequent flier. The token would be pegged to a stable currency such as the Euro or US Dollar and act as a stable coin. This contrasts with tokens such as Bitcoin and Ethereum, the price of which today is based on consumer sentiment alone and can fluctuate wildly without warning.
Prior to take-off, an airplane would sync its onboard version of the blockchain with that of the other participating nodes in the system, thereby possessing the latest set of transactions that are known to be part of the global ledger. During the flight, users would pay for goods and services using their secure mobile wallets. The local blockchain would be used to verify each transaction instantaneously and capture the same, thereby guaranteeing payment to the carrier.
Immediately on landing, the transactions would be broadcast to the blockchain network and verified by all other nodes that are participating in the system. Eventually all the transactions would be locked into the blockchain thereby updating the global ledger. This process would occur within a matter of seconds thereby reducing any chance of fraud dramatically.
The incentive for airlines to adopt such a payment system is huge as it would help to eliminate in-flight fraud. Also, the commission that the airlines pay per transaction to the card processors (Visa, Mastercard etc) would be eliminated, thereby increasing the carriers’ margins on goods and services sold in flight. Some of these savings in turn could be passed onto the customers, for example by selling the tokens at a discounted face value of 10pc, thereby providing cheaper food, beverages and duty-free goods in flight, and incentivising passengers to use the alliances’ crypto token as opposed to traditional payment cards which would be more costly in comparison.
This seems like a win-win situation and may finally propel such crypto tokens into a fully-fledged currency that acts as a real-world payment instrument, something that as yet has not been achieved by any cryptocurrency. Such a cryptocurrency could eventually be used by large numbers of consumers to purchase goods and services in their day-to-day lives, as opposed to being utilised by a small minority as ‘value store’ with no practical usefulness, as is the case at the present time.
Dr Hitesh Tewari is an assistant professor in the School of Computer Science and Statistics at Trinity College Dublin. His primary research interests are in the areas of network security and applied cryptography.
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