![]() Although nearly half of payment fraud is related to pen-and-paper processes, digital methods and credit cards are not immune.įaced with this situation, it is not surprising that more and more companies are turning to fintech to reduce payment costs, particularly when it comes to B2B payments, where 1.8% interchange fees for cards introduce excessive overhead. While traditional payments are geared towards creating trust, 78% of businesses reported attempted or actual B2B payments fraud during 2018, with international fraud rising 136% from 2017–2019. This has led to reduced cash flow for merchants – and ultimately to the insolvency of Thomas Cook and Flybe. Most travel is booked long in advance, and given the uncertainty introduced by COVID-19, holdbacks have increased significantly. Holdbacks have particularly affected the travel industry as a result of the COVID-19 pandemic. Here, acquirers keep a percentage of a merchant’s revenue as collateral in case a service is not provided, and refunds must be issued. So-called “holdbacks” are another issue that has come to prominence recently. In the US, the average B2B payment cycle takes 34 days to complete, with 47% of invoices being paid late. When we look beyond card payments, the picture is even worse for merchants. ![]() This is not ideal for small-to-medium-sized businesses that depend heavily on cash flow to pay suppliers and employers. While validation takes place in milliseconds, it can be days before money finally arrives in a merchant’s bank. The speed of transactions can also be a problem. As recently as September 2019, Visa added a fixed charge of 0.02 EUR for merchants using 3D-Secure, which is increasingly required under new PSD2 legislation.Ĭost isn’t the only issue merchants face with the traditional stack. Card networks and other parties can also raise their fees. The traditional stack involves numerous charges. Over subsequent days, funds are transferred from the issuing bank to the acquiring bank. Once a transaction is validated, which occurs within a few milliseconds, a merchant has a guarantee that they will be paid at a later date. Each party within the payments stack takes a small cut of a transaction.Ī typical transaction involves a payment processor checking with the issuing bank if a customer’s card can be charged. At the same time, this trust has a cost, which is ultimately borne by merchants. They check that transactions can be carried out and manage the transfer of funds. Together, they make up what is called the “payments stack.” These different parties work together to create trust. In a traditional payment flow, three to five parties facilitate a single transaction. The cost in trust in traditional payments By eliminating middlemen, cross-border blockchain payments can result in even faster transfers while significantly reducing costs for both merchants and customers. Blockchain-based solutions represent the next logical evolution of this trend.
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