Saturday, November 22, 2008

Merchants may get real-time access to funds at lower rates

Typically, if a merchants wants to pay low fees, they get access to their funds later (e.g., ACH payments received after 3 days). If the merchant wants to get access to their fund immediately, they would have to pay a higher rate (e.g., credit/debit cards payments are received overnight).

This seemed to be an immutable reality that merchants had come to expect. Lower rates/fees and 'immediate' access to funds seemed to be a contradiction.

There is light at the end of the tunnel. Digital Transactions reports that PayPal is piloting a payment method where the merchants can have access to fund immediately (overnight). The rails are different from ACH and payment card rails. The disruptions keep on coming.

It will be interesting to see how this innovation plays out. All the best to PayPal for continuing to move the ball forward. Innovations that reduce online merchant's cost of accepting payments cannot come fast enough, especially in the current economic conditions.

1 comment:

  1. Manju -

    I take exception to your first statement (and you probably do too :-)). Merchants pay a higher fee for credit cards because the banks can charge it (what real option does an ecommerce merchant have?) for the service they provide (guaranteed payments for properly authorized transactions).

    With the ACH, there is no payment guarantee whatsoever. Hence you get what you pay for.

    Now, there are some low cost, next day payment systems. E.g. pinless debit for certain kinds of billers. Fees are capped at 45 or 55 cents and you get funded the next day.

    With Paypal, you can get payments instantly. It's called so - Instand Payments. So, not sure what this "disruption" is all about.