Consumers have a huge number of payment options to choose from, whether that be one-click, contactless, mobile or voice – all are designed to streamline the consumer’s purchase journey.
While varied payment options have their own benefits, they also cause issues, including fraud.
To protect consumer payments across the variety of payment options, new security layers have been developed. But the more layers, the more room for error and disruption. Paperwork gets lost, records are hacked, files deleted and chargeback fraud happens.
But what if these layers were streamlined, removing the need for human checks and balances? Decentralising the way all transactions are stored, tracked and approved could be the solution. Enter blockchain.
What is blockchain?
Blockchain has the potential to revolutionise payments by making them faster, cheaper and more secure.
It is a successive list of transaction records known as blocks. Each block contains a cryptographic hash of the previous block, like DNA, a timestamp and the transaction data.
Blockchain has been designed as an open ledger that records transactions between two parties in a verifiable and permanent way. Rather than the numerous layers of approval and review required in current payment processing environments, the blockchain transaction is packaged in a single linear chain of request and approval. This creates a complete record of any type of asset transfer, making it almost impossible for potential fraudsters to exploit.
Blockchain and the chargeback process
If you have experienced a fraudulent transaction in your bank account, it is likely that the bank used the chargeback process as a means to recover the funds.
Chargebacks are essentially the reversal of an outbound transfer of funds from a consumer’s debit or credit card. They occur for various reasons, such as quality issues with products, deliveries not turning up or confusion on a bank statement. Based on a report Verifi commissioned by Javelin Strategy & Research, in 2017 chargebacks were a $31bn problem in the US market alone. The report highlights the importance of collaboration between issuers and merchants in mitigating the impact of chargebacks, and Verifi develops and provides solutions that facilitate this collaboration.
When done right, the visible nature of blockchain can eliminate vulnerabilities for merchants by:
• Providing real-time information – Time stamps fix a traceable timeline, featuring the how, who, when and where of accountability.
• Replacing paper with digital data – Proof of purchase, approval records, receipt of items and other payment data are stored in the blockchain. The merchant, issuer, acquirer and consumer all have access to the same secure data – saving time and money in the event of a chargeback claim.
• Error and complexity are thwarted – Fake data, errors in approval, double purchases etc are prevented with the linked blockchain process. Fraudulent data cannot be inserted into the blockchain.
By forming a secure chain of data approval and transfer, blockchain is changing the way information is exchanged. The pressures and insecurities experienced by consumers, merchants, issuers and acquirers can be alleviated within this new level of communication and data storage. Simply removing the expectations on each participant in a purchase means the risk is eliminated, and everyone has access to a more secure way of doing business.
This article first appeared on October 3rd, 2018 in Specialist Banking.