Fraud, Trust at Risk in Emerging Fast-Payment Landscape

Loss prevention specialist Chargebacks911 cautions that as payment speed increases, so will the possibility of fraud.

The growing move to faster payment options for retailers may improve merchants’ cash flow, but increased transaction speed brings along with it the increased potential for fraud according to Chargebacks911, a leading dispute mitigation and loss prevention firm.

In a recent survey of business owners by Aite Group, 80% of respondents indicated that they would be interested in instant funding from acquirers and lenders, and 80% of those businesses would be willing to pay a fee for faster payments. In addition, 85% indicated that they would change acquirer relationships, meaning the companies whose credit cards they accept, if another merchant acquirer offered instant funding of card receipts.

A major driver for real-time payments is not e-commerce but the gig economy, which encompasses everything from ride- and house-sharing to pet sitting and at-home coding. According to a new study by Mastercard, the global gig economy generated an estimated $204 billion in 2018; the market is expected to grow to $455.2 billion by year-end 2023. The major credit card companies have been quick to respond to this opportunity. In late 2018, Visa began to provide real-time payment services to courier service Postmates through Visa Direct. Mastercard is offering Visa Direct alternative Mastercard Send, and PayPal has acquired gig economy specialist Hyperwallet. American Express and Square are also said to be developing B2B payment solutions.2

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Meanwhile, the Federal Reserve has proposed creating its own real-time payment service, which would facilitate 24/7/365 interbank settlements of faster payments and serve as a liquidity tool to support transfer between Federal Reserve accounts. Support for the plan has been voiced by major retailers, community banks and credit unions, and tech companies such as Amazon, Apple, PayPal, and Google. Many big banks, however, have disagreed with the proposal, as has the Heritage Foundation. The Fed has not yet announced its final plans.

Questions have also been raised as to both the need for, and the security of, real-time payment systems. In an investors conference at the end of May, Visa CEO Al Kelly commented that he does not see a robust consumer need for payments faster than the current card networks or settlement platforms. He also noted that real-time payment systems often lack the ability to revoke funds if money is sent to the wrong person or goods are not delivered as promised. Disputes and chargebacks, he pointed out, will be extremely difficult to deal with.

“Although merchants will be pleased at first because of the initial speed of transaction,” commented Monica Eaton-Cardone, co-founder and chief operating officer (COO) of Chargebacks911, “the real hurdle with real-time payments will be reduced trust and fraud. There is currently no universal method for challenging a transaction, obtaining a refund for goods not received, or claiming back funds remitted against fraud. Until we have a consistent set of guidelines for how to handle fraud and chargebacks that is standardized across the marketplace, adoption rates are predicted to wane, despite merchant’s incentive for reduced processing fees.”

Chargebacks911 is dedicated to educating and supporting eCommerce merchants with services designed to boost revenue, shrink chargebacks, and defeat fraud. To that end, Monica Eaton-Cardone and her team will be participating in a number of upcoming industry events, including Chargeback University in Los Angeles, Toronto, and London, and IRCE at RetailX in Chicago. For details on Chargebacks911’s comprehensive risk management solutions, informative articles and other merchant resources, click here.

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