The multichannel, digital marketplace thrives on speed, convenience and ease of use. We’re always striving to remove friction and make processes faster and more efficient. One way to achieve this includes streamlining how we conduct payments.
According to a recent survey of business owners by Aite Group, 80% of merchants would be interested in the possibility of instant fund transfers. This isn’t a modest preference with 80% of those respondents willing to pay higher fees to benefit from faster payments. An even larger portion—85% of responders—said they would be willing to change acquirers if another provider offered instant card receipt funding.
What’s driving the widespread preference for instant payments? The gig economy is major factor as work done in this sector is expected to generate $455.2 billion in value annually by 2023. Another major factor is simply the trajectory of the market. As mentioned above, the market naturally gravitates toward faster and more convenient solutions.
Are We Ready for Faster Payments?
Industry players are responding to merchants’ demands. Visa, Mastercard, Amex, PayPal and Square are all currently working to bring real-time payments to wider usage. Efforts vary from building out native B2B platforms catering to gig economy workers to PayPal’s strategy of outright buying payment provider Hyperwallet. On an even broader scale, the U.S. Federal Reserve is working to create its own real-time payments platform, potentially replacing the existing automated clearinghouse (ACH) framework entirely.
Clearly, the move toward instant payments is real, and it’s already underway. Yet, could there be a downside to faster payments?
On one hand, instantaneous payments clearing offers lots of benefits, but there are drawbacks too. As Visa CEO Al Kelly points out, instantaneous payments could complicate the dispute process, making it hard to manage chargebacks.
With instant payments, it could be more difficult to track down and recover stolen funds when fraudsters manage to execute transactions. It’s a roadblock, because under the 1974 Fair Credit Billing Act, U.S. consumers are guaranteed some means to dispute credit billing. How this carries out is outlined in some detail in the Uniform Commercial Code which is interpreted and applied by the card schemes.
We don’t want to be too hasty with major, industry-wide changes. It’s hard to overstate the impact this change would have as we’re literally upending decades of industry established processes. We’d essentially be rebuilding the foundation of our payments processes from the ground-up.
Innovation is a good thing, but it can’t come at the expense of more uncertainty regarding online fraud. Merchants and banks are already projected to lose $32.82 billion in 2019 due to card fraud, which doesn’t account for other threat sources like friendly fraud. More confusion in the payments space will only make existing problems even worse.
What Should Be the Strategy Going Forward?
Providing faster, hassle-free payments clearing is a robust goal to accomplish. However, there are other matters we need to resolve first.
The real hurdles preventing real-time payments adoption are reduced trust on the one hand and ever-increasing eCommerce fraud on the other. As mentioned before, rapid payments could complicate the chargeback process. We don’t know exactly how or which actions to take in response because there is no single chargeback process. We don’t have a universal method for disputing transactions or managing those disputes.
I’m a longtime advocate for standardization of chargeback processes across card schemes. As I noted recently, we need consistent and fair standards for chargeback processes and management. Once we have a universally applicable process for managing fraud and disputes can we start talking about instantaneous payments.
As much as merchants may be in favor of instant payments, they’re not going to embrace something entailing major risks and uncertainties. I don’t see adoption rates of instant payments systems taking off until we address this and other nagging problems in the payments process.
Monica Eaton-Cardone is COO and Co-Founder of Chargebacks911