Would you prefer a Corona bond or a Corona voucher? If you ask me, I would prefer the new Bond. Its opening night at the cinemas was planned for April but this was unfortunately cancelled due to the virus. Necessity is the mother of invention, and so is working from home. There are currently two money-related ideas to improve the current liquidity crisis. The German Government is (still) against Corona bonds but very much in favour of Corona vouchers. This is reason enough for us look more closely into the voucher proposal below.
The German Government’s voucher proposal
On 2 April, the German Government’s “Corona cabinet” decided in favour of the implementation of a voucher solution for prepaid package holidays, airline tickets and leisure activities. Currently, customers can demand to have their money refunded within a short period of time in the case of a cancellation by the organiser. Due to the measures adopted by the Federal Government to control the pandemic, flights, holidays and leisure activities have had to be cancelled for a few weeks now. It is currently unclear when the restrictions will be fully or partially lifted. Forcing organisers by law to repay money received for such bookings at short notice would cause illiquidity and therefore insolvency for many of them.
This is where the Government’s envisaged voucher solution comes in. Customers will receive a voucher (in digital or paper form) instead of a refund which will be valid until 31 December 2021. That way, organisers are able keep any prepaid funds as well as the customer. If a customer decides not to use the voucher by the specified date, they can subsequently claim their money back from 1 January 2022 onwards. If the organiser has gone bankrupt by then, the State will be liable. At the end of the day, the result of this proposal is an extension of the short deadline to refund flight tickets (7 days) or package holidays (14 days) by a minimum of 18 months.
Consumer associations are naturally not very happy with this solution and label this measure an interest-free compulsory loan provided by consumers whose liquidity is also endangered due to the current crisis. With regard to leisure activities, the Federal Government has already published a “Draft Act to mitigate the consequences of the COVID-19 pandemic in event agreements”. However, the European Commission’s approval is still required for flight tickets and package holidays, as the proposed measures would temporarily disapply applicable European law (EU Package Travel Directive and EU Flight Compensation Regulation). Initial reactions from Brussels to the Federal Government’s request have so far been rather unsupportive.
As a general rule, the voucher will not be directed at a specified service (e.g. return flight from Frankfurt to Rome) but it will be issued for the prepaid amount in euros. This would mean consumers bear the risk of higher prices in post-Corona times. And in light of the fact that we are currently seeing a huge influx of money while at the same time our value chains have significantly decreased, this risk of inflation is by no means purely hypothetical. Let us also not forget the climate tax as well as reduced competition between providers due to an increased number of insolvencies. The purchasing power of a 100 euro note or voucher valid for an airline will in all likelihood be worth less in January 2022 than it is today.
I had wanted to attend a conference in Riga which was planned for the end of April. I booked and paid for my tickets with airBaltic in mid-February. A few days ago the airline cancelled the flight. I was offered 20 euros on top if I chose a voucher instead of a refund. However, despite the extra money, I prefer a refund as the likelihood of me booking another flight with this relatively small airline in the foreseeable future is quite small. My decision would be different on the other hand, if airBaltic had offered me a voucher that was not only redeemable with airBaltic but also with another airline or even all European airlines. Would a European airline voucher not be much more attractive to consumers than an airBaltic voucher?
European airline vouchers
Compared to the much simpler two-party solution, such (digital) cross-provider vouchers would require a third-party service provider overseeing the issue of such vouchers or even issuing them itself as well as managing the voucher accounts for the voucher holders and taking care of the clearing between participating companies. There are already a number of such service providers in the market (e.g. in the area of multi-merchant loyalty schemes and City Cards). All airlines wanting to offer European airline vouchers instead of the legally required refund would need to join the system and commit to accepting these vouchers. The remaining risk of insolvency should be taken on by the State, as is the case in the closed-loop solution proposed by the Federal Government. In light of the extended usage possibilities of such vouchers, it could also be feasible to do away with the right to refunds if the vouchers were not redeemed by 2022. Additionally, this solution, though born out of necessity, would still have a good reason to continue to exist in post-Corona times as a European airline gift card, as an instrument to compensate consumers in cases of flight delays etc.
A similar open-loop model could also be organised for other “prepaid” segments (package holidays and leisure activities). However, if paper solutions are waived, cross-merchant digital voucher solutions would get us into regulatory territory. In this area, the legislator has already set out non-bureaucratic and liberal rules. If and to the extent a payment instrument can only be used for a limited set of goods or services that are functionally linked, the issue of such payment instruments is not subject to a licence pursuant to Section 2 para. 1 no. 10 of the German Payment Services Supervision Act (“limited range”) respectively Art. 3(k) of the PSD2, as long as certain requirements are met (e.g. application of certain threshold amounts). There are significantly lower regulatory hurdles to overcome for flight cards (plastic or digital) – just as is the case for petrol or cinema cards – and they can even be used as a cross-border payment instrument.
In times of crisis, when some governments are even prohibiting their citizens from going outside for a walk, you can at least continue brainstorming ideas in your head. You could even imagine a cross-sector Corona super voucher that is accepted by all airlines, tour operators, theatres, cinemas, sports organisers, restaurants etc. A type of leisure voucher. In all likelihood, BaFin would not accept the application of the area exemption to such a payment instrument but maybe in times of crisis it could turn a blind eye.
At the end of the day, the difference between vouchers and bank notes is simply the limited acceptance of vouchers or the universal acceptance of bank notes which is required by law. The limitation of vouchers could be extended to a type of “complementary currency”. A good example is the Amazon gift card which is even used with respect to ransom demands. It would also be possible to specifically use the limitation to improve liquidity in certain market segments that are particularly suffering in this crisis. In contrast to our universal money, vouchers can be programmed for use in specified market segments and for certain market participants. Fighting the crisis with the help of programmed money is therefore a more effective solution. Would a post-Corona stimulus programme in the form of the issuance of leisure vouchers not be an idea worth considering? Leisure money: possibly somewhat hedonistic but still better than black market or drug money. Moreover, money that is programmed for leisure activities would be in line with the upcoming work-saving digital age of artificial intelligence.
By the way, last week I exchanged views with Christian Walz and Stefan Schneider on the topic of “Prepaid products against the crisis” in the 49th episode of PayTechTalk. It’s worth listening.
Cover picture: Copyright © Adobe Stock /Artenauta