One of the design principles of the Level One Project is transaction irrevocability. This means that once money has been sent from one party to the other, the sending party can’t change their mind and take the money back—without the consent of the receiving party.
Transaction irrevocability is necessary to keep transaction costs low: handling exceptions and reversals is very expensive, in any payment system. It is also necessary to bolster consumer confidence in the system, and encourage consumers to leave balances in a digital form in their account – where they can be sure the funds are safe.
Implementing an RTRP system with transaction irrevocability can be challenging. They types of challenges—and the best means of handling these—vary by use case.
In person-to-person payments, the challenge is managing claimed consumer error. Evidence from many early mobile money programs shows that consumers make errors—lots of them—in addressing payments and entering amounts. It seems logical to allow a customer who has made a mistake to reverse a transaction. However, experience with payments systems in the developed world indicate that false claims of error—a type of fraud—are expected as a system grows. Recently, mobile money programs have found that implementing a confirmation message dialog with the sending consumer (“do you want to send 500 KES to Kamau?”) significantly reduced the volume of errors. In an interoperable system, this is particularly strong when the confirmation comes from the receiving institution, who validates that the payment address (phone number, bank account number or other alias) is associated with a name, which is then presented to the sending consumer for confirmation.
In bill payments, the challenge is both avoiding errors in amount entry, and ensuring that the payment will be credited to the right consumer’s account at the biller system. In this case, a confirmation message which matches a consumer’s account number at the biller with the proposed payment could ensure proper posting. Over time, as more payments are made in response to “request to pay” messaging (sometimes implemented with QR codes), the likelihood of these errors reduces.
Merchant payments present perhaps the largest challenge. Problems of payments errors – amount errors or payer address errors—can be managed through the techniques described above. But digital merchant payments will also bring the challenge of commerce fraud: a legitimate payment, in the correct amount, is made to a merchant who defrauds the buyer by providing not-as-described merchandise or, in the case of remote commerce, by not sending goods paid for. There are a variety of potential solutions to these challenges, including escrow services, consumer insurance programs, published “bad actor” lists, or various forms of government or commercial “good actor” designations.
Next Topic in this Section: Enabling Regulatory Environment