It is likely that 150 billion transactions will pass through the U.S. payment card system as we enter the next decade. Each item must be accurate as it flows through the electronic path of authorization to clearance and settlement. The purchaser who tendered the card at any point of interaction (POI) must be authorized to use the account, either directly by the card issuer as the account owner or as an authorized party guaranteed by the account owner.
Cardholders are not liable for unauthorized transactions, nor are they liable if the merchant misrepresented the goods or services. In the event of either of these two circumstances, the cardholder has the right to dispute the transaction. When a transaction is placed in dispute, the card issuer has the responsibility to correct the situation or refute the claim.
Verifying the cardholder’s identity is part of card authentication and a requirement to protect the banking system from abuse, codified in various Know Your Customer (KYC) programs, known in the United States as the USA PATRIOT Act. KYC programs exist in countries from A to Z: in Australia under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, in Zambia under the Bank of Zambia Anti-Money Laundering and Combating the Financing of Terrorism or Proliferation Directives, 2017, and in other countries under similar programs at central banks.
Most KYC requirements were updated after the terrorist attack on the United States on September 11, 2001. Before that, less rigid requirements covered KYC in the United States, such as the Truth in Lending Act of 1968
(Reg Z), and the Fair Credit Billing Act of 1974 (FCBA) prevailed.
Exceptions will occur as transaction volumes grow. These exceptions, which turn into dispute cases, are fractions of total throughput, but with trillion dollar volumes and units measured in the billions, growth in transaction volume brings correspondingly large dispute volume.
Mercator Advisory Group’s latest research report, Credit Card Dispute Management: Transactions in the Billions Bring Exceptions in the Millions, addresses payment disputes, which are costly for credit card issuers.