Are real time payments a threat to credit/debit cards? An interesting question which was recently explored in a PYMNTS podcast interview with InstaReM CEO and Co-Founder Prajit Nanu*. In my view, it is a question that needs to be considered from both sides of the transaction – being the merchant and the consumer (or business in the case of a B2B transaction).
From the consumers point of view, reaching for the credit card for e-commerce transactions is driven primarily by two factors: the payment methods offered by the merchant (typically limited to credit/debit cards) and whether they wish to pay using their own funds (debit card) or by credit (credit card) – note that this decision may also be impacted by the loyalty rewards program associated with their credit card.
From the merchants point of view, the payment methods they offer are similarly driven by a small number of factors: the cost of acceptance, the speed of settlement and consumer demand for the payment method (the proliferation of Afterpay, Zip, OxiPay etc. driven by evangelical customers are great examples).
In Australia the payment method with the lowest cost of acceptance is usually direct debit from a bank account via the grand old direct entry system. While direct is “cheap” relative to transactions routed via scheme rails, it has historically been cumbersome – people tend not to carry their BSB/account details with them and so transactions can be more difficult to enter into and the settlement timeframes for a DD transaction are, typically, three business days.
Faster bank to bank payments (in Australia, via the creatively named New Payments Platform (NPP)) clearly solve the settlement issues. PayID, an overlay service associated with the NPP, which allows consumers to send and receive bank payments using a mobile phone number or email address as the account ID (rather than their BSB/account number) also reduces the friction at the point of payment. Add to the arrival of digital/online EFTPOS in Australia and we MAY see an impact on the number of scheme credit/debit transactions. Emphasis on the ‘may’ as in scheme credit and debit card payment options, and through the ever increasing availability of ‘buy now, pay later’ payment options, consumers today already have payment options available to them that meet their requirements, whatever their circumstance may be at the online checkout.
What will ultimately dictate the effect faster payments (read NPP) in Australia will have on the number of e-commerce credit card transactions in this country will be the cost of acceptance for merchants and improved chargeback protection. Only significant improvements in both areas will see non-scheme payment methods get headline billing at the online checkout.
| PYMNTS.com. (2019). Retrieved from https://www.pymnts.com/news/faster-payments/2019/instarem-real-time-payments-credit-cards/
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