It's a rum business being an airline banker, and even crummier for two banks - NAB and Westpac - well and truly entwined with the collapse into administration last night of Virgin Australia.
As the acquiring bank - meaning the processor of credit card payments - NAB may be on the hook for many hundreds of millions, depending on the recent (dubious) capability of Virgin to fulfill refunds on cancelled flights since the COVID-19 pandemic shot down international travel and, thanks to mandated social distancing, the supply and demand for domestic flights fell to trivial levels.
There is a reason credit card processor Tyro Payments is one of the few to take on big banks; the exposure to macroeconomic and industry-specific shocks can be immense.
Sign up to MasterCard or Visa and elect to play the acquiring side of this market and you're in deep.
The onus is on airlines and travel companies and hotels and the likes of Ticketek to refund pre-payments around cancelled bookings flowing from the crisis.
But many won't or can't and overall few (such as Qantas) will be meeting all or most demands for a refund.
This brings a crazy brave centrepiece of credit card schemes to the fore.
If you don't get what you paid for using a Visa card or MasterCard your bank has made you a promise. They will refund you.
In full. Obliged to by a series of contracts.
The consumer badgers their bank (the issuing bank) for the refund. And that bank will pay up, because their future as a member of the card scheme is on the line.
The issuing bank then claims on the merchant's bank (the acquiring bank), the latter bank guaranteed to be rated junk if they don't play along and pick up the tab.
This risk is partly priced into the supercharged spread on consumer credit card borrowing, at least for those big banks that play both sides of the cards market, as all big banks do.
The rest is priced into the merchant's fees, hopelessly under-priced if we're frank about it.
Things are a little more fluid when it comes to travel paid for an American Express card or a Diners Club card.
When Ansett collapsed in 2001 Amex, being robust, refunded clients. Diners Club declined to do so and steered clients to making claims on travel insurance and Diners' reputation has never recovered.
Grant Halverson, principal of consultants McLean Roche, took a stab at estimating the liability of NAB, American Express and Diners Club (in Australia, owned by Citi) to the Virgin demise. Halverson is a former CEO of Diners Club Australia and knows the ins and out of this segment market.
Keeping things simple, Halverson told Banking Day he puts the combined maximum exposure of NAB, Amex and Diners at around A$1.5 billion.
NAB's exposure will be in the order of $800 million, Amex around $470 million and Diners around $45 million, Halverson says.
The remaining liability, roughly $150 million, will be borne by bankers to overseas travel agencies and wholesalers and any Virgin customers that might have paid their travel agent in cash.
The Westpac connection to the Virgin administration is its status as the primary buyer of frequent flyer "points" from the airline across a number of Altitude-labelled Westpac credit cards.
The bank's consumers have already shown their disdain for this card product and the decaying value in Virgin's Velocity Frequent Flyer program, with a run on points and a stack of Velocity members switching into the corresponding program offered by Singapore Airlines.
VA's 2019 accounts show revenue from Velocity at $411 million. What would Westpac's share of that be? The best part of half maybe. And given Westpac's own customers will continue to give Altitude cards the cold-shoulder that's a direct cost saving.
But the underlying impact on the bank in foregone (elevated) credit card margins and declining fee revenue must work out to a drag on earnings - and thankfully for Westpac shareholders only a fraction of the burden now faced by NAB as Virgin's principal banker.