Payments can't get fast until trust issues are fixed

If there’s one thing that remains consistent about the digital marketplace, it’s that we’re always looking for new ways to make processes faster, frictionless and more efficient.

E-commerce thrives on the principle of delivering a seamless experience for customers, but there is only so much that we can handle at the merchant level. Eventually, the drive for quicker resolutions turns into a push for faster—or even instant—payments settling.

But could there be a downside to faster payments?

Transaction disputes are one potential problem. Visa CEO Al Kelly suggests it would be harder to track down stolen funds and recover them when fraudsters manage to pull off transactions. It’s not just a problem for general consumer satisfaction, as it could create legal problems too.

In the U.S., the 1974 Fair Credit Billing Act guarantees consumers some means to dispute credit charges in the event of fraud or error. The details of how to carry out disputes are loosely outlined in the Uniform Commercial Code, but it’s largely left to the individual card schemes to sort out.

Don’t get me wrong; innovation is a good thing. We cannot allow it to come at the expense of uncertainty and risk regarding online fraud. The ramifications of completely replacing our existing payments clearing infrastructure are hard to predict. Whenever we have major industry changes generating uncertainty, it’s usually a safe bet that fraudsters find ways to manipulate the situation before we know how to secure it against them.

Under the present state of affairs, merchants and banks are already projected to lose $32.82 billion in 2019 due to card fraud. You can add on tens of billions more to that figure due to revenue drains like friendly fraud, false positives and unjust enrichment. If we throw in an unpredictable variable like instantaneous payments, the losses will almost certainly spike.

Instant payment settling is popular.

One recent survey conducted by Aite Group found 80% of merchants are interested in seeing instant fund transfers become a reality. Among those respondents, 80% would be willing to pay a premium if it meant clearing payments instantly.

When asked if they would be willing to switch to a new acquirer who offered instant receipt funding, 85% said yes.

Why are instant payments suddenly such a commanding issue for merchants? The gig economy is one of the major factors. According to the same survey, the value of the gig economy is projected to reach $455.2 billion annually by 2023. However, the real answer is a lot more fundamental and intrinsic to the nature of the digital market. It’s a natural extension of the drive to always make online interactions a faster, pain-free experience.

The major card schemes are already working toward the goal of an instant payments settlement. Visa teamed up with Postmates last year to give couriers instant access to their earnings. Mastercard and American Express Co. are working to expand and build out their own solutions as are PayPal and Square.

The real testament to the appeal of instant payments comes not from major industry players but from the federal government. The U.S. Federal Reserve may develop its own own real-time payments platform. With this technology in place, we could potentially see the existing ACH framework replaced entirely within a few years.