ETA Expert Insights: The Impact of Bank Centric Payments on Merchants and Consumers

Across the payment industry a movement towards bank-centric payments is emerging. Founded on new technology by companies like Venmo, CashApp, and Zelle who are fast gaining popularity through app-based direct payment transfers. Consumers are capitalizing on this new fast-paced payment method in both their purchasing habits and selling practices.

As customers continue to demand quick cash exchanges with the convenience of a cell phone app, banks and merchants alike will cater their business models to meet these evolving purchasing habits. However, where does this shift leave the payments industry? It’s important to consider the changes in banking security, fees, and user-experiences as businesses on a mass-scale continue to favor direct account transfers over merchant accounts.
App-based payment transfers are becoming the new norm in certain industries and adding convenience in others. In certain places, cash is already outdated. Some traditional industries like barber shops and hair salons request tips through Venmo instead of the standard cash-in-hand method. The transfer is immediate, and both parties save themselves trips to the bank and dealing with physical cash transactions.

PEER-TO-PEER PAYMENTS
Merchant preferences and casual money exchanges are together moving toward peer-to-peer transactions. For new or high risk businesses, the option is especially beneficial for those that can’t get a conventional merchant account. No longer does a new business have to go through a bank and develop a separate account for their business. It’s as easy as setting up a personal account and pointing customers to their username.

The low cost of entry is attractive to entrepreneurs who are adapting to the opportunity. For new businesses the benefits are abundant. They have more freedom to run their business without having a website or operations moderated by an intermediary. Moreover, industries that may have faced bank regulations, now have the ability to function based on their own site design and billing choices, rather than through the confines a merchant account enjoins.

Peer-to-peer payments cut banks out of the process. As a result, businesses don’t have to pay fees to a third party or deal with the possibility that their account may be shut down. For banks, this means they will not have the ability to sell extra services such as payment gateways and terminal equipment. Alternatively, the resources to streamline card-not-present payments will grow toward a more consumer-based model.

CHARGEBACKS AND DISPUTES
One downside to peer-to-peer mobile payment apps is a lack of control over chargebacks. Unlike traditional chargeback disputes, direct transfers between individuals are hard to reverse. Moreover, there may not be an exchange of receipts or a bill of sale when it comes to making casual purchases. So if a customer decides they want to reverse their payment, they may have a difficult time doing so.

The dispute process isn’t well known by users. Presently, a customer can request money back from the same account they paid, but it’s up to the business to finalize the transaction. If they decide not to offer a refund, the customer is in a difficult spot. Likewise, merchants don’t have the treasury ability to claw back a payment in the same way a merchant account could.

The ease of sending payments is the main contributor to fraud. For example, if someone borrows or steals your unlocked phone, they have direct access to certain apps where large sums of money can be transferred. Direct debit transactions are the most detrimental to the user, who may see large unapproved transfers simply from leaving their phone unguarded.

ALTERNATIVES AND COMPETITON
With the rapid increase in popularity of payment apps, many companies are making sure they are part of the new trend. From pioneers like Paypal, to leaders in social media like Facebook, payments are now considered an additional and essential service to users.

Names like Venmo, Cashapp, and Zelle are being used colloquially as a way to describe fast money transfers. The incidence of branding your company as a leader in quick payments is key to long term growth in the rising market.

For some key businesses in the payment industry the transformation is problematic. Terminals are sitting unplugged and merchant fees are fast becoming obsolete. Nevertheless, new technologies give rise to superior products, and in an environment where merchants and consumers can transact faster and more directly, there will be opportunities for anticipating and improving on progress.