Payments can’t be fast until trust issues are resolved | PaymentsSource
If there’s one thing that stays consistent in the digital marketplace, it’s that we’re always looking for new ways to make processes faster, smoother, and more efficient.
E-commerce thrives on the principle of providing a seamless experience for customers, but we can’t manage a lot at the merchant level. Eventually, the search for faster resolutions turns into a push for faster, even instant payment settlement.
But could there be a downside to faster payouts?
Transaction disputes are a potential problem. Visa CEO Al Kelly suggests that it would be more difficult to trace the stolen funds and recover them when fraudsters manage to complete transactions. This is not only a problem for general consumer satisfaction, as it could also create legal issues.
In the United States, the 1974 Fair Credit Billing Act guarantees consumers the means to dispute credit charges in the event of fraud or error. Details on how to settle disputes are vaguely described in the Uniform Commercial Code, but much of that is left to individual card schemes to settle.
Do not mistake yourself; innovation is a good thing. We cannot allow this to come at the expense of the uncertainty and risk of online fraud. The consequences of completely replacing our existing payment clearing infrastructure are difficult to predict. Whenever we have major changes in the industry generating uncertainty, it’s usually a safe bet that fraudsters will find ways to manipulate the situation before we know how to protect it from them.
As things stand, merchants and banks are already expected to lose $32.82 billion in 2019 due to card fraud. You can add tens of billions more to that figure due to lost revenue such as friendly fraud, false positives, and unjust enrichment. If we add an unpredictable variable like instant payouts, losses will almost certainly increase.
Instant payment settlement is popular.
A recent survey conducted by Aite Group found that 80% of merchants wanted instant funds transfers to become a reality. Of those respondents, 80% would be willing to pay a premium if it meant settling payments instantly.
When asked if they would be willing to switch to a new acquirer that offered instant receipt financing, 85% said yes.
Why have instant payments suddenly become a major problem for merchants? The gig economy is one of the main factors. According to the same survey, the value of the gig economy is expected to reach $455.2 billion per year by 2023. However, the real answer is much more fundamental and intrinsic to the nature of the digital market. It’s a natural extension of always wanting to make online interactions a faster and painless experience.
Major card schemes are already working towards the goal of instant payment settlement. Visa teams up with Postmates last year to give couriers instant access to their earnings. Mastercard and American Express Co. are working to expand and develop their own solutions, as are PayPal and Square.
The real testimony to the appeal of instant payments comes not from the major players in the industry, but from the federal government. The US Federal Reserve could develop its own real-time payment platform. With this technology in place, we could potentially see the existing ACH framework replaced entirely within a few years.
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