Airline Distribution at a Crossroads: How NDC is Reshaping Payments and Settlement Rails

The Evolution of Airline Distribution

For nearly four decades, the airline industry relied on the EDIFACT (Electronic Data Interchange for Administration, Commerce and Transport) standard to distribute ticket inventory and flight schedules to global travel agents. This legacy system, controlled primarily by Global Distribution Systems (GDS) like Amadeus, Sabre, and Travelport, was built in the era of mainframe computers. While EDIFACT served its purpose for standard ticket bookings, it is highly restrictive. It cannot easily handle modern retail features like dynamic seat selection, baggage pre-orders, Wi-Fi packages, or personalized loyalty upgrades.

To break free from these legacy constraints, the International Air Transport Association (IATA) introduced New Distribution Capability (NDC). NDC is an XML-based data transmission standard that allows airlines to bypass traditional GDS limitations and distribute their inventory directly to travel agents, corporate booking portals, and online aggregators. While NDC’s retail benefits are widely documented, the shift has created significant challenges for the airline industry’s underlying payment and settlement systems.

Legacy Settlement vs. Modern NDC Payments

Under the legacy EDIFACT model, travel agents book flights through the GDS, and the transaction is routed through IATA’s Billing and Settlement Plan (BSP). The BSP acts as a central clearing house, consolidating sales data from agents, collecting funds, and distributing them to the respective airlines once or twice a month. The GDS acts as the central hub, and the billing process is standardized and highly automated, but slow and expensive.

With NDC, this model changes. NDC enables a direct connection between the airline and the seller. This shift moves the checkout experience closer to the airline itself, meaning the airline acts as the **Merchant of Record (MoR)** for a larger share of bookings. This change has two major operational implications:

• Acquiring and Processing Costs: Because airlines now process payments directly rather than through BSP clearing houses, they must manage global acquiring relationships, process foreign currency conversions, and pay card network interchange fees. This requires sophisticated payment gateway management to keep processing costs low.
• Real-Time Payment Split: NDC allows airlines to sell bundled packages that include partner services, such as a flight ticket combined with a hotel room, a car rental, or local lounge access. The airline’s payment system must be able to split the customer’s payment at checkout, distributing the correct amounts to the partners instantly while retaining the airline’s share.

The Rise of IATA EasyPay and Alternative Payments

To help airlines manage these new payment challenges, IATA introduced **IATA EasyPay**. This is a pay-as-you-go electronic payment method designed specifically for travel agents booking tickets through NDC channels. EasyPay acts as a closed-loop digital wallet. Agents pre-fund their EasyPay account, and when they book a flight, the funds are instantly transferred and secured for the airline. This eliminates credit risk for the airline, reduces transaction fees for the agent, and speeds up settlement.

Furthermore, NDC allows airlines to support local alternative payment methods (APMs) that were historically difficult to integrate into GDS terminals. Airlines can now offer local bank transfers, digital wallets (like WeChat Pay, Pix, and Venmo), and local cards directly to travelers worldwide. This is crucial for capturing bookings in high-growth markets like Latin America and Southeast Asia, where credit card usage is low.

The Road Ahead: Building Modern Airline Payment Rails

As airlines transition from traditional transport companies to digital retailers, their payment departments must modernize. This involves partnering with modern FinTech processors, deploying payment orchestration layers, and adopting automated fraud detection tools. The airlines that successfully navigate the payment complexities of NDC will not only lower their operating costs but also deliver a better checkout experience for passengers, driving higher ancillary sales and brand loyalty.