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Thought leader insights

Payment transfers – challenges, advancements, and new business opportunities

Wednesday 23 May 2018 | 01:11 PM CET

Michail Goryachkin, Payneteasy CTO, reveals the advantages and challenges of money transfer technologies and how can businesses drive new opportunities by supporting them

Visa and Mastercard money transfer technologies have facilitated and modernised the payment industry, allowing for safe, fast, and efficient delivery of payments via cards. However, there are still some businesses and institutions that have yet to adopt the advancements and this could cause them to miss out on significant business opportunities.

Buying and selling of cryptocurrencies

The demand to buy and sell crypto is on the rise, and we've seen many new online marketplaces recently launched. The need for a secure and fraud-proof transfer transaction is high, so card-to-card transfers could be an option, since they are proofed by 3D Secure and even more significantly, such transactions are quasi-cash, meaning that they are irrevocable. This is excellent for those who’d like to avoid money loss.

Money transfers for P2P and small businesses

Card-to-card instant transfers are a great option for those who want to receive payment directly without dealing with opening bank accounts, such as small business owners, freelancers etc. Accepting online payments through card transfer is also a smart alternative for those businesses that are too small for acquirers, and don't want to pay high commission or PSP rates. This payment method already has proof of concept, and we've already seen 50% of the Russian ecommerce industry turn to P2P transactions via cards.

Transfer operations can be through AFT (account to card), or CFT/OCT (card to account).

CFT/OCT (Original Credit Transaction)

It's possible to launch all kinds of payouts to bank cards partners, clients, or employees via CFT/OCT. Visa specifies permission of use for insurance payments, taxi driver payments, freelancers, marketplace suppliers, and casino winning payouts. We've seen a large shift in schemes used by payment industry giants who have adapted the CFT/OCT method in order to optimise payments in terms of cost and simplicity. There are several additional scenarios and possibilities for utilising the method:

Payouts for employees can be conveniently transacted through CFT/CT if, of course, it meets the requirements of tax legislation for the specific jurisdiction. This can be a much faster and cost-effective solution unlike classic wage payments - difficult to launch, due to bureaucratic inconveniences.

Portals that have thousands of paying customers, such as freelance taxi services. For example, services like Uber (Worldwide) or Yandex Taxi (Eastern Europe) use traditional sales transaction to get payments from people that use their service. Payments to drivers are made from the company's bank account, and this means the driver needs to deal with a bank account or e-wallet. It would be much simpler for them if the payment could be made directly to the driver's bank card. The same case could work for any aggregating system that connects users and suppliers.

Microfinance institutions that issue short-term cash loans can also simplify the process by using CFT for payouts, instead of issuing to client's PayPal or bank. This would be much faster and easier for the client, and (s)he would instantly have access to the needed money. It would also decrease the cost of issuing the loan, and a more convenient way to make the repayment. 

The first PSP to launch a service for microfinance firms based on CFT and AFT transactions was a large Russian, Payneteasy client, SBC Technologies. Starting four years ago, it was one of the main reasons that they on-boarded about 80% of the Russian MFI market.

Migrations workers living abroad that want to send money to their families can do so quickly, even in 30 minutes with OCT. According to European Union 2018 research, there was roughly 11.6 million immigrant transfers in 2017 due to the high level of the labor migration, and the most common method was via wire transfer, SEPA, and PayPal. However, CFT technology allows for more efficient transfers, and it can even be done simply through ATMs or other service providers that can even be merchants connected to transfer services.

AFT transactions

AFT is a simple and cost-effective method for loan repayments. Mastercard holders, for example, can make repayments on any credit taken from a list of participating bank partners. This functionality is very attractive for both the obligors and the banks, as it increases the loan repayment rate by eliminating the need to go to the bank for repayment. The funds are easily transferred to the customer’s account within a day. EFT also allows to process and keep the UCAF for re-payments, thus a bank or MFI could set recurring payments according to loan repayment schedule with the client’s consent.

Using both types of transactions – CFT and AFT, it is possible to create products that will be based on transfers and supplemented by other interactions within the system, such as e-wallets, etc. For example, it’s possible to build a network for people united with common causes and the base for payments will be transfers technology.

Challenges

Although I find this technology very innovative and useful in terms of new business opportunities that it brings, there are a few challenges that should be mentioned.

First, many EU banks have not yet implemented transfer protocols of Visa and Mastercard, even though EFT requires the support of this functionality. This would make the transactions unrecognisable to the banks, and create a problem. However, this is expected to change by November 2018.

The second challenge is that the method can be abused for fraud, for example, by phishing websites which can sell air tickets for cheap prices by using transfer instead of sale. This is done through irrevocable quasi-cache operations, and the user will not be able to make a chargeback.

Advancements and new possibilities for the future

Considering that both Visa and Mastercard, transfer technologies are the priority and EFT actively promotes them among acquirers, many new open doors and innovation are expected. For example, transfers by a phone number linked to the bank card are now being tested in Eastern Europe. Such transfers could be made between Mastercard and Visa bank card, supported by the EFT partners in each region.

Card to card transfers have proven to be game-changers in the world of transactions not only for people, but for business as well. I believe that there are lots of new opportunities to build a breakthrough and seek after services and products which could be based on these innovative features.

About Michail Goryachkin

Michail Goryachkin has been working for Payneteasy since its foundation. He focuses on the platform’ technological innovations, improving its ability to meet modern trends and to be flexible for any types of payment business . Working closely with clients from different fields he has got a unique expertise in payments and technologies.

 

About Payneteasy

Payneteasy provides PSPs, banks, fintech and more with the cutting-edge payment technologies. When working with Payneteasy, you can entrust us with all the issues related to payments, not wasting your own resources on the technology development and integrations. Fast integrations, flexible customisations and up to date payment innovations will empower your business.

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