“Pay-Later” Option Provides Opportunities

But Doesn’t Address Industry Problems

By Tracy Cray | 25 July 2018

The digital market in the Asia-Pacific region is growing at a remarkable rate. Several factors play into this, particularly a growing middle-class population throughout the region and widespread smartphone and internet penetration.

In total, the value of the Asia-Pacific eCommerce market will grow from £1.05 trillion GBP in 2017, to more than £1.5 trillion by 2020. China, on its own, will represent about £1.275 trillion of that figure.

There’s one major obstacle, though: payment card adoption in the Asia-Pacific market has not kept pace with the growth in eCommerce. For example, there are just 2.8 credit cards in circulation in the Indian market per every 100 consumers. Compare that to the US, where consumers hold approximately 2.6 credit and debit cards per person.

Businesses looking to expand in this fast-growing market need to get creative about payment methods. The “pay later” model, represented by services like LazyPay, gives consumers flexibility, allowing those with limited access to credit to make purchases and pay under controlled, pre-agreed terms. Buyers can conduct multiple transactions, then simply pay the balance due to LazyPay in one transaction at the end of the month.

Merchants accepting these services enjoy access to a lucrative new base of consumers as well as the added perk that they need never worry about chargebacks. After all, the customer is not using a payment card, so while a transaction can still be overturned, it won’t impact the business’s chargeback ratio. That sounds great, but it leaves a larger question in the industry unanswered.

Bypassing Chargebacks Won’t Resolve the Problem

Alternative payments may be chargeback-resistant, and merchants can avoid some potential chargebacks by accepting pay-later services, bank transfers, cryptocurrencies, or one of many other options. That doesn’t address the core issue with chargebacks, though, which is how the industry enables and litigates disputes.

At present, industrywide chargeback practices shift the balance of power toward consumers at the expense of merchants and financial institutions. The industry shouldn’t entice merchants to turn to alternative payments to mitigate the impact of chargebacks. Instead, the industry should create fairer, more balanced policies to address existing problems in dispute rules and practices.

Now, as more and more of the global market opens through digital channels, the industry has a perfect opportunity to re-examine dispute practices across the global market and standardise the process.

It’s vital that the industry takes this into consideration as eCommerce grows in developing markets where payment card usage has not kept pace with internet adoption. In North America and Europe, where eCommerce caught on earlier, the lax dispute standards conditioned consumers to file disputes. Lack of accountability similarly trained financial institutions to exercise little oversight in the process.

There is a chance to “start fresh” in these markets where consumers haven’t been spoiled by the chance to get a chargeback whenever they want. If the industry fails to establish more concrete, defined payment dispute standards now though, they will simply be exporting identified problems to new consumers as they join the payment card market.

Consistency is the Key

Chargebacks cause a great deal of pain in the market for everyone involved. That’s true even for consumers, as disputes can push up costs and involve weeks of back-and-forth motion while funds are stuck in limbo, so that’s not to say that the goal should be to “punish” anyone. Instead, the industry needs to create a level playing field for consumers, merchants, and institutions alike.

Visa’s recent policy overhaul, the Visa Claims Resolution initiative, was a good start. The rule-set shortened timeframes, simplified the chargeback reason code system, and introduced the Visa Merchant Purchase Inquiry (VMPI) plugin, which effectively automates certain disputes. That said, VCR is not without its downsides and shortcomings.

Friendly fraud can still slip through defences imposed under VCR, while inconsistencies across multiple card schemes mean the lack of standardisation that plagues the industry is still present.

There is a need to impose clear, industrywide dispute standards that apply across card schemes and different payments technologies. Otherwise, new and developing markets will only import the same mistakes and replicate them.

A consistent base of industry dispute policy that applies across international borders and payments technologies makes for a much smoother adoption of diverse markets into existing industry framework. This is the only way to have fairness and consistency, regardless of market maturity or payments technology involved.

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