25 Million Exceptions Is Not Bad Considering 66 Billion Credit Card Transactions Are Being Processed
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
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
and the Fair Credit Billing Act of 1974 (FCBA)
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
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.