Although paying with cards has become almost ubiquitous in American economic life, nearly a third of small businesses surveyed in a recent study by Xero reported that they don’t offer credit or debit cards as a payment option. This can leave consumers scrambling to find another way to pay—or opting to visit another merchant entirely.

When credit and debit card facilities are unavailable at a small business, nearly one in five customers resort to another payment method at checkout, according to the I Want to Pay That Way report. However, a slightly higher percentage would simply choose to visit another business that accepts their preferred payment option.

Hair salons and food purchases remain the most common goods and services for which American use cash. Overall, three-quarters of respondents said they still use cash for payments, though just 20% of consumers ensure they have cash on hand when they go to the store.

Alternative Payments Pay Off

When small businesses adopt new payment methods, they pay off. More than 40% of small businesses surveyed that implemented new payment methods in the past six to 12 months reported an increase in sales as their primary benefit. Interestingly, small businesses led by Gen Z executives were more likely to see  sales growth from new payment methods than those run by any other generation.

Of course, increasing sales isn’t the only, or even primary, reason for adopting new payment processes. Other benefits reported by small businesses included accessing a new customer base, reducing the time it takes to receive payments, and spending less time chasing late payments.

Looking for New Solutions

One reason small business owners might resist adopting credit and debit card payment processing is dissatisfaction with these services. According to research from J.D. Power published earlier this year, overall satisfaction with merchant services ranks lowest across all customer service aspects. On a 1,000-point scale, satisfaction with credit card processing scored 692 points, while debit cards scored 694 points.

Despite this, many small businesses are excited about future technologies coming to their establishments. The Xero survey found that at least a third of small businesses are optimistic about emerging payment methods like biometric authentication, bartering marketplaces/apps, and digital currencies.

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In the ever-evolving landscape of retail, understanding consumer preferences for payment methods at physical locations has become crucial for businesses aiming to enhance the shopping experience and increase customer satisfaction. As digital wallets, contactless cards, and mobile payment solutions continue to gain traction, traditional cash and card payments remain significant.

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Data for today’s episode is provided by Javelin Strategy & Research’s Report: A New Era of Chargeback Management

Preferred Payment Methods at Physical Locations

• 39% – Major credit card
• 31% – Major debit card
• 15% – Cash
• 3% – Contactless at the POS
• 2% – Store-specific card

About Report

The chargeback—a forced refund to a cardholder’s account that is initiated by the issuing bank—turns 50 years old later this year. The maneuver, legislated into existence to foster trust in card payments at a time when few consumers were using them, has aged into a management headache for merchants. In an age of proliferating card usage and ongoing growth of e-commerce channels, chargebacks are easy to initiate and easy for consumers to win. Merchants, meanwhile, need help with the complex process of challenging chargebacks, heading them off in the first place, and avoiding the escalating consequences of a high chargeback rate. It’s an endurance test most merchants are not equipped to navigate alone. 

This Javelin Strategy & Research report looks at where chargebacks started out and how they have evolved into a present-day challenge for all kinds of merchants. It lays out the stakes for harboring an unchecked high chargeback rate, denotes strategies for communicating with consumers to reduce instances of so-called “friendly” fraud, and examines the value of dedicated service providers versed in representment and building strategies to stem the chargeback tide.

The post What Are the Preferred Payment Methods at Physical Locations? appeared first on PaymentsJournal.

The European Union Council has adopted new rules that require instant payments in euros to be fully available in the EU. Customers will be able to transfer euro-denominated money within 10 seconds at any time, even outside business hours, to any other EU member state. The move is widely expected to help European payments companies compete on a more equal footing with Visa and Mastercard, according to Reuters.

The law is expected to go into effect in April. Banks located in the eurozone are required to begin allowing instant payments within 18 months of that date. Banks in the non-eurozone area have until 2027 to comply and until 2028 to allow instant payments made from an account in a local currency.

Payment service providers that offer standard credit transfers in euro will also be required to both send and receive instant payments in euro. If banks apply any charges for these services, they must be no higher than for standard credit transfers.

A Needed Change

The landscape for instant payments in the EU has been fairly desolate prior to this new initiative. Several EU countries allow free transfers that take a day or two, but true instant payments are offered at a higher rate and cannot be used for cross-border transactions. SEPA (Single Euro Payments Area), the existing EU network, allows for cross-border transactions between EU countries, but countries can transact only in euros, and uptake has been slow.

The instant payment rules were first proposed in October 2022. At the time, Mairead McGuinness, the Financial Services Chief at The European Union, described the move as “seismic and comparable to the move from mail to e-mail.”

Analysts have expressed a great deal of enthusiasm for the new instant payments protocol.

“Mandating a requirement and having it go into action are two vastly different things, but I am very optimistic about this announcement,” said Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research. “ASEAN [the Association of Southeast Asian Nations] already has a regional play, and the EU is the next logical one. We can add to the list the announcement of India’s UPI and Google Pay. Regional cross-border is the first step in achieving global, cross-continent, cross-ocean transfers. Global instant payments are imminent.”

The post EU Takes a Giant Step to Promote Instant Payments appeared first on PaymentsJournal.

Google has announced that the U.S. version of its standalone Google Pay app will be discontinued as of June 4. In a blog post, Google recommends that Android users henceforth access their Google Pay payment methods through their Google Wallet. The post notes that Google Wallet is used five times more often than the Google Pay app in the United States. 

Users will have access to the U.S. version of the Google Pay app to view and transfer a balance to their bank accounts until June 4. After that, the Google Pay website can be used to transfer funds to bank accounts. For users who plan to take advantage of this, Google Support offers more details.  

The announcement also terminates Google Pay’s P2P payments service without specifying if or when that capability might be made available again. “You will no longer be able to send, request or receive money from others through the U.S. version of the Google Pay app,” the blog post says. 

Google expects users to seamlessly switch to using Google Wallet. “Anywhere you normally use Google Pay—from checking out online to tapping and paying in stores—remains the same,” the blog post notes.  

The change largely affects the United States. In India and Singapore, the app remains unchanged.  

An Unsettled History 

The introduction of Google Wallet in 2022 was an indicator that the company would move toward consolidating its personal finance offerings.  Technically, that was a reintroduction: The Google Wallet name had been first used for the company’s mobile payment system, which was introduced in 2011. It merged with Android Pay in 2018 to become a new app called Google Pay.  

The reintroduced Google Wallet was designed to let users store their ID cards, health insurance cards, and various passes in one main digital wallet.  Google Pay was then launched in 2020 to create room for the Plex checking account product, which was announced in 2019 and discontinued in late 2021 after the departure of longtime payments leader Caesar Sengupta.   

“Today’s announcement basically finishes the combination of Pay and Wallet that was first announced in 2022 when the Wallet app was launched,” said Christopher Miller, Lead Analyst for Emerging Payments at Javelin Strategy & Research.  “Moving forward, Google is trying to consolidate U.S. users in the Wallet app as a hub for payments, loyalty cards, car and hotel keys, as well as a growing digital ID service. The changes will streamline the experience that U.S. users have while leaving unanswered the question of just how Google views payments within its broader financial services strategy.” 

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Is philanthropic giving the next frontier for payments? A pastor in California has raised $20 million for Overflow, a payments startup he founded, which aims to make charitable giving frictionless.

With the new funding, Overflow is looking to move beyond giving and provide a range of financial services to churches and other nonprofit organizations. CEO Vance Roush spent years as a product manager at Google before turning to the ministry and founding Vive, a church with 11 locations throughout Silicon Valley.

Founded in 2020, Overflow began with the goal of making it easier to donate stock to nonprofits. “Several members wanted to donate stock like Facebook, Google, and Apple stock,” Roush said in 2022. “When I looked into how they can do that, it required multiple forms to physically fill out and fax in. I knew that millennials won’t fax in anything.” When the process resulted in millions in offerings to Vive, Roush decided to make it available to other churches and nonprofits.

The capacities have expanded to the point that donations can be made via ACH, card, DAF, Wills, crypto, Apple Pay, Venmo, CashApp, Google Pay, and PayPal. The timing is right, since online donations have been reported to be growing six times faster than offline giving. Roush has expressed a desire for Overflow to become a “Brex for Churches,” noting that its “goal is to establish a full financial suite of solutions to save church and nonprofit finance teams time and money.”

Expanding the Possibilities of Donations

Overflow says that it enables an average stock donation of $12,979, which is 100 times larger than the national average cash donation. “We grew to facilitate crypto donations and then broadened even further and now support the most comprehensive giving solution in the industry,” according to its blog. “Our platform proudly boasts over 240,000 users and is on track to eclipse 1 million users this year, connecting them with over 450 leading organizations like the Golden State Warriors Community Foundation, Church of the Highlands, VOUS, Zoe Church, Belonging Co, VIVE, Reality SF, and Convoy of Hope.”

The company’s Series B round was led by Wesleyan Investment Foundation, which provides financing to churches and church-related organizations. Uncork, R7, and The GP also invested in the current round of funding. Overflow says that the new investment will help them take the next step toward “our wider mission of becoming the financial operating system for the faith space and beyond.”

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Mastercard is partnering with Last Mile Solutions to establish new payment standards for the electric vehicle (EV) charging industry across Europe. The plan is for a new methodology that allows charge point operators (CPOs) to integrate their existing EV charging stations with a variety of payment terminal brands, without requiring extensive integration efforts. Mastercard hopes the payment gateway solution will unify the user experience and simplify payment terminal integration, onboarding, and transaction processing.

Mastercard believes this effort will foster “the uptake of electric vehicles throughout Europe by eliminating existing barriers and simplifying the charging process for drivers with interoperable and universal payment solutions.” Last Mile Solutions is a Dutch-based EV charging and smart energy management platform provider.

A Separate Set of Standards

Why does the EV industry need its own payment protocols, separate from those used by traditional gas stations? Last summer, the European Parliament and the Council of the European Union adopted Regulation (EU) 2023/1804 on the deployment of alternative fuels infrastructure, commonly known as AFIR. One of AFIR’s primary objectives is to lay down mandatory minimum targets for a publicly accessible recharging and refueling infrastructure. The stated goal of the regulation is to alleviate the uneven distribution of publicly accessible recharging infrastructure across the EU.

In addition, many EV charging stations aren’t currently connected to an existing payments network. There are also various ways of charging different EVs, akin to the difference between diesel and unleaded, and the charging standards tend to be manufacturer-specific. That too has led to inconsistencies in payment processing.

“We’re converging on standardization, or at least interoperability, that will normalize the process,” said Christopher Miller, Lead Analyst of Emerging Payments at Javelin Strategy & Research. “But EV charging does enable some new applications since you are plugging an electric cable into the vehicle. The vehicle can be identified by the charging station through that connection.”

“In the long run that autopayment, triggered by the charging activity itself, will likely carry the most volume,” he said. “If this turns out to be true, then standardized charging interface and payment mechanisms are the direction things will go, and the individualized creation of ecosystems by brand or car will fade away.”

Heading for a Final Form

The Mastercard/Last Mile solution will be rolled out across Europe in early 2024. The AFIR regulations come into force this April.

“This announcement should be seen as one in a continuing series of efforts to make it easier to add more EV charging capability and reduce the friction of payments in compliance with various regulations worldwide,” Miller said. “A great deal of what is happening now is enabling activity that doesn’t represent the final form that EV charging payment will eventually take.”

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Middleware has emerged as a crucial factor in the banking industry, enabling small- and midsized banks to offer the same level of services as their larger rivals.

As Javelin Strategy & Research analyst Matthew Gaughan defines middleware, two primary forms have emerged to work with banks: API-based middle layers and integrated platforms as a service (IPaaS).

Gaughan’s new report, Coexisting in Payments: How Middleware Forges Alliances Among Smaller Fis, Core Providers, and Fintechs, examines the role middleware plays in today’s payments landscape.  Gaughan discusses not just the key players providing the middleware services but also how the smaller banks benefit from a more level playing field. 

“Middleware puts smaller financial institutions in a better position to handle alternative payment methods, such as account-to-account payments or different types of instant payment rails,” Gaughan said. “Small- and medium-sized banks are the big winners in this shift.”

A Leg Up for Smaller Banks

Small to medium-sized banks have long harbored frustrations with the core banking provider they are beholden to—such as FIS, Fiserv, Jack Henry—because of the slow pace of innovation. The cost and human effort of changing providers would come at too great a toll. While larger regional banks have been able to buy other banks and acquire better technology and expertise, many smaller banks have become resigned to playing catch-up with their larger counterparts’ ability to innovate.

That’s where middleware comes in. Banks are turning to financial data providers and other third-party fintechs to give their banking clients the technological firepower they need to stay relevant. These partners are enabling third parties to connect to a bank’s core platform by implementing middleware solutions that translate information between the different systems at each company.

“Players like Fiserv and Jack Henry essentially act as a single wrapper around a core banking platform,” Gaughan said. “Third parties connecting to integrated platform as a service, or IPaaS, are similarly a way to open up a bank data to those third parties via APIs. But they do so through multiple point-to-point connections instead of the single layer that some of those API-based middleware solutions offer.“

Building Partnerships

Partnerships bolster banks’ traditional product suites and lay the groundwork for being able to offer emerging payment methods. Giving customers the ability to share their data with many third-party applications enables banks to meet users where they need them. The middleware providers play an important role in this process.

In one example, a young adult looking to fund an account at an online neobank could use the debit card from their primary bank without having to save or repeatedly enter their credentials. The same could be said for sending money to a friend via a P2P payment app, like Venmo. Both scenarios, fueled by middleware services, help ensure the acceptance of traditional products offered by a bank.

Middleware can also put smaller FIs in a better position to handle alternative payment methods, such as account-to-account and instant payments. Leveraging the third-party connections facilitated by a bank’s core provider or platform will be a force multiplier for providing innovative technology that consumers increasingly expect.

A Web of Payment Methods

Consumers have gained more agency over how and where they pay as payment methods proliferate. Nevertheless, banks still play an active role in a customer’s financial life. Financial institutions will need to offer emerging options while also ensuring the acceptance of their more traditional, card-based products. Customers will still need a bank account to access other payment rails, such as those supporting A2A. Some customers may even expect these transactions to settle instantly.

The resulting web of payment methods is increasingly complex, and banks will need technology that supports a customer’s desire for choice. This starts with determining who to partner with. Choosing the right financial data provider to collaborate with could give a bank’s customers access to thousands of APIs that could help them connect to a wide array of third parties. Through these connections, a bank can scale existing and emerging product lines. It could use loan decisioning tools from Plaid’s recently announced consumer reporting agency to support its credit products, for example.

Conclusion

Banks should choose partners that enable them to connect their cores securely and seamlessly to the many third-party financial apps and services many customers are turning to. Interoperability is the bedrock for scalability. And for many banks, middleware is the key to interoperability.

“Given the amount of services that these companies provide to banks, they’re getting more bang for their buck with these relationships,” Gaughan said. “In a way, they’re modernizing alongside their core banking providers.”  

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PayPal’s new artificial intelligence-driven features and new one-click checkout option fell flat this week, at least in the eyes of Wall Street. It is one of the first major tests for new President and CEO Alex Chriss, who joined the company last September.

The new products are an attempt to latch onto the hot trend of AI, both from a user and investor perspective.

One of the key features is a platform that would use AI to enable merchants to reach new customers based on their previous shopping history. PayPal would be able to leverage that data from the approximately half a trillion dollars’ worth of global merchant transactions it processes. Another AI-based tool, Smart Receipts, allows retailers to recommend personalized items to shoppers through email receipts.

PayPal also announced a one-click checkout feature called Fastlane, which can purportedly accelerate checkout speeds by nearly 40%. “Customers simply save their information with Fastlane to check out in as little as one tap,” PayPal announced in a press release. “No username or password to remember, no personal information to update, and no need to share a credit card with businesses all over the web.”

“The data that we have and our ability to actually see what people have bought and know what merchants are trying to target, that’s where I think AI is the huge opportunity for us,” Chriss told Reuters in an interview.

Watching with a Sense of Caution

While it’s too early to see the effect of the PayPal announcement in the marketplace, observers are yet to be impressed.

“PayPal’s new AI-based features have the potential to offer consumers better personalized recommendations at key touchpoints like receipts and its app,” said Daniel Keyes, Senior Analyst of Merchant Services at Javelin Strategy & Research. “But this effort’s success will come down to if these products can meaningfully increase sales for its merchants, which remains to be seen.”

So far, the early returns from investors are not good either. Wall Street reacted negatively to Chriss’ announcement, sending PayPal’s stock down by 3.67%.

PayPal has struggled to find its footing recently. The company’s stock was down by about 14% in 2023. It has also faced competition from Stripe, a rival payment processor, which has filed paperwork toward an IPO and has been bolstering its relationship with Amazon.

PayPal brought on Chriss with the intention of trying to solidify its relationships with key players in the technology and financial services sectors. In October, PayPal announced it was letting customers add their PayPal or Venmo credit and debit cards to Apple Wallet.

The post PayPal’s New AI Features Met with Mild Reception appeared first on PaymentsJournal.

The future of commercial payments doesn’t rely on a one-size-fits-all approach. Diversity in payment methods offers particular strengths and capabilities in the commercial payments landscape.

In his “Trends & Predictions: Commercial and Enterprise Payments” report, Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, delved into why no single payment type will dominate the commercial payment space and how instant cross-border payments are poised to disrupt the traditional banking system.

No Single Commercial Payment Type Will Dominate

There’s a place for all key commercial payment types, including ACH and the UK’s Bankers’ Automated Clearing System (BACS). Although Bodine contends that checks should not be included in the lineup, they are still being used by businesses.

The chatter among the industry within the past 12 months has been that there will be one payment type that will take over all other payment types. One suggestion floating around was that credit cards would become the primary way of payment, 100% of the time.

Bodine begs to differ.

“I just don’t think that’s a very pragmatic, realistic approach,” Bodine said. “What is happening as payment instruments become more mature or continue to evolve in the commercial payments world, we’re seeing ACH very well positioned for certain types of commercial payments. Wire for other things. Commercial cards or virtual cards for other things.

“I think the intelligent approach is that we have some very good payment types. They offer a lot of variety, and therefore we need to position them accordingly and alongside each other to have a well-thought-out commercial payments program.”

ESG and its Impact on Paper Checks

Companies are increasingly facing scrutiny from investors about their environmental, social, and governance (ESG) initiatives. This ties to a variety of factors, including growing awareness of climate change and its ensuing impact on resources, environmental pollution, and transparent decision-making processes.

For some organizations, deploying such initiatives requires a significant investment of resources that they may not have. However, Bodine said, a simple three- to five-year initiative to “get the ball rolling” in that direction would be to abandon the use of paper checks.

As a demonstration that ESG initiatives are not just another trend, Bodine recounted that a certain organization was recognized by the American Business Awards for its ESG efforts by reducing the use of paper checks. Clearly, the recognition for these initiatives exists and could become table stakes for most organizations.

Instant Cross-Border Payments Will Disrupt Banks

One of the most exciting trends coming down the pike this year is the launch of truly instant cross-border payments. A pilot program is underway between the United States and the EU. These transactions are set to take place in the first quarter of 2024.

“Once that happens, I think you’re going to see the floodgates open, and then we’re going to start to see connectivity between the U.S. and India, between India and Brazil, between the Asia-Pac countries in the EU,” Bodine said.

“The reason this is important is that this will greatly disrupt the traditional correspondent banking infrastructure that has caused individuals in enterprises to be entirely reliant on large banks and a wire system to be making large payments or even not large payments.”

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Theft from Venmo, PayPal, Zelle and other payment apps has been “skyrocketing” recently, according to the Manhattan District Attorney’s office. DA Alvin Bragg sent a letter to the providers of these payment apps, demanding enhanced security measures, including lower transfer limits, additional password security, additional wait times for large transactions, and increased monitoring for unusual activity.

Bragg’s letter is a follow up to a 2022 letter that Massachusetts Senator Elizabeth Warren’s office sent to the banking industry. Warren’s office said its investigation into Zelle showed that fraud claims had tripled between 2020 and 2022, costing consumers hundreds of millions of dollars. Warren was also part of a group of four Democratic senators that asked for further investigation into payment platform fraud last year.

Zelle is now by far the largest peer-to-peer payment system in America. In 2022, the app’s transactions totaled $490 billion, up 59% from the prior year. In contrast, Venmo handled $230 billion and had 62.8 million active U.S. users in 2023.

Sophisticated Crimes

Many of the attacks that Bragg refers to are common muggings. In an interview with CNN, he described reports of crooks approaching ordinary citizens demanding their phones, The thieves would then transfer money out of their accounts via a payment transfer under threat of physical harm.

But there have also been more sophisticated methods. In one effort, a team of thieves would ask Lyft drivers if they could put in a new address into the Lyft driver’s phone. Once they had the phone in hand, they would transfer assets to their own bank accounts using Cash App. According to court records, as much as $6,500 was taken from 50 Lyft drivers in 2020.

As a solution, Bragg asked for more safety measures, such as lowering the limit of daily transfers, requiring wait times on larger transfers, and for a confirmation when suspicious transfers occur. Even something as small as canceling a transaction would help, Bragg said.

Zelle Responds

A spokesperson for Early Warning Systems, the operator of Zelle, provided the following statement to PaymentsJournal:

“We are aware of isolated criminal incidents described in the Manhattan District Attorney’s letter. Providing a safe and reliable service to consumers is the top priority of Early Warning Services, LLC, the network operator of Zelle®, and our 2,100 participating banks and credit unions. As a result of our continued efforts to build on Zelle’s strong foundation of security, less than one tenth of one percent of transactions are reported as fraud or scams, and that percentage keeps getting smaller.

“Our efforts include implementing industry-leading fraud and scam prevention measures for consumers like in-app safety notifications, and send limits and restrictions. For network banks and credit unions, we’re helping to screen out bad actors with free tools. We also invest in ongoing consumer education efforts and have brokered public-private partnerships to do so.

“All Zelle Network® participating financial institutions are required to reimburse consumers for confirmed fraud claims. Consumers should contact the local authorities and their bank and credit union if they were a victim of a crime to begin the claims process.”

For its part, Venmo says it hasn’t seen a significant rise in what it calls bank jacking reports. The initial Warren report chose 2020 as a baseline, which was when Venmo and Zelle first took off as P2P solutions in response to the pandemic. Venmo recommends that users take security measures to protect their accounts, including facial recognition, multifactor authentication, and a PIN code.

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