American hate for wire transfers will never sound anything other than irrational to me. Why don't you have an equivalent of Europe's Instant Payments?
The author mentions the storefront pocketing the money, that seems implausible? If an unscrupulous storefront can pocket money that would be wired, it could also pocket money that would be paid by CC.
And then there's the weird thing about payment volumes...that's been a solved problem for half a century?
US banking has wire transfers, but they cost $15-$40 and can only be reversed with the cooperation of the receiving bank. We use them to transfer large sums of money and for transfers that need to be settled immediately; most often for house purchases where both apply.
We do have ACH (single nightly batch), same day ACH (four? batches throughout the day), and the new FedNow (immediate). But all of those involve providing account numbers and we don't like to provide those (both payers and receivers prefer not to give the other participant their ach numbers). Also, there's not a consistent way to link a payment/debit with an invoice, because memo fields don't necessarily show up with the payment.
Also, credit card purchases can be reversed without the cooperation of the merchant. Most issuers are generous with chargebacks (at least historically). You could take a merchant to court if you did a wire transfer, but that's expensive and time consuming.
> we don't like to provide those (both payers and receivers prefer not to give the other participant their ach numbers
This is because in the US, anyone can pull money out of your account with only the ACH numbers; which is an insane design[1]. In most other countries, the worst you can do is deposit money. The equivalent of ACH pulls requires significantly more paperwork and proof of consent by account owner.
1. Much like SSNs, which can be debilitating if not kept secret. US payments run in "true names" magic, and simultaneously expect you to register with your one true name at random places with questionable security practices, and it's your fault if there's a breach.
> This is because in the US, anyone can pull money out of your account with only the ACH numbers; which is an insane design
That’s the default for at least Germany and SWIFT, too. You can ask your bank to disable this, but that means losing the pull functionality completely; I think some banks have an interface to whitelist individually, but the majority doesn’t.
It can become a problem especially when you list your account number publicly somewhere for payments or donations: somebody will eventually use that account number to pay for random stuff. You’re contractually obliged to check your bank statements and ask for a (free) chargeback within a certain period of time (some weeks?).
At our projects, we solve this by having a separate “public“ bank account for incoming donations that blocks pulls, and a much less public one for pulls.
Apart from this use case, abuse seems to be rare enough that banks typically don’t expose the functionality to disable but only do it manually when asked specifically. I doubt most people even know they could.
> In most other countries, the worst you can do is deposit money.
So in the EU, anyone can indeed pull money with your account number (and with RTP that may change someday). But we can also revoke any such direct debit within a certain period of time.
I had to do it once, over my banking app, money was back the moment after I clicked.
Finland is part of SEPA and we definitely don't have the ability to pull money out of someone elses' bank account without permission, using only the account number.
The "anyone can pull money out of your account" piece is true but it also isn't.
Yes, if a financial institution allows you to originate a debit from another account without verification, you could take money from anyone's account. The max liability you should have given prompt reporting of fraud (less than 60 days) is $50, and if your institution doesn't give it all back then find a new one.
ACH is also technically reversible, whereas wires/other instant transfers are not.
FIs also do fraud checks on ACH, I believe it may be a regulatory requirement now (sometime in the past few years?) to have some form of fraud check before sending originations to the FED. Typically this is verification of the other party being a known entity/account, which would ideally burn fraudsters very quickly.
Most transaction facilitators don't play around with any of this though, and have some "account linking" step before they are willing to originate transactions. Micro-deposits that you would need to verify on the other account.
> This is because in the US, anyone can pull money out of your account with only the ACH numbers
Whoa, I don't blame people for not wanting to provide ACH numbers in that case. Is there any groundswell to provide a system where this doesn't happen?
FedNow is that system. It only sends money. Can request money but it needs to be approved.
However, I'm not sure if it uses different account numbers from ACH. It could be that sharing account numbers could be secure with FedNow and dangerous for ACH.
No, since software if built around existing limitations. IE stripe invoices will generate a single use account number per invoice, so you can give that to someone who needs to pay. Aligns payment with invoice since they’re 1:1 and you can pull out funds since it’s always empty
Account-number only pulls (eg ACH Debits) are insane. Where I'm from people, charities etc routinely publish their bank account numbers if they expect to receive money from strangers.
>American hate for wire transfers will never sound anything other than irrational to me.
I'm assuming "wire transfer" means something different to you than what it means in America. In the US, a wire transfer is when you call up your bank, give them a routing number and account number, tell them to wire however much money to it, agree to pay like $20 or something for the transfer, and then they tell you the transfer will happen tomorrow morning because it's 3:30 PM and the last batch gets handled at 3:00. They're not so much hated as pretty much entirely irrelevant to everyone. I've made one wire transfer in my life, and that was for buying a house.
We have “faster payments” in EU/UK. You enter a bank account number and sort code, confirm it, and it transfers instantly in 99% of situations. 0 fees, it’s faster than card payments and available to anyone with a bank account. If you want to go down the clearing route you can do CHAPS which is the same as a US wire.
Well, in Hungary had the "instant payment" for years, but last year the National Bank issued the spec. & requirement for the banks to facilitate the "qvik" payment method. Which is pretty much a QR code which you scan with your bank app and they will automatically parse & populate the fields for wire transfer. Then the payment provider will do a callback to the merchant which confirms that the payment was made
[1]: https://www.cib.hu/en/Maganszemelyek/digitalis_bank/mobilalk...
There are two problems with faster payments in the UK as an alternative to cards.
1. A lack of a mechanism for using it for things like online purchases.
2. What about the 1% of the time when it is not instant?
On top of that you are not allowed, by law, to charge customers more for a card purchase so customers have no incentive to switch from cards and the existing mobile phone payment systems.
Not sure how they do it in the UK, but in the EU, for online purchases they typically give you a unique code to enter in the note field. This is picked up by an automated system and matched to your order.
It does sometimes take two business days to clear, so it's not good if your service requires fast turnaround (e.g. pizza delivery). Of course, it's always good to have another option, and perhaps even for pizza delivery you could accept it on trust with customers you have a good relationship with.
(On the software side, unlike a credit card payment, this does require that you temporally decouple ordering and billing. Besides the processing delay, a lazy user might not send the payment immediately. Two weeks seems to be a typical length of time, and of course you don't ship anything until payment is received. Treat it a bit like a cash-by-mail payment.)
It is guaranteed to take no more than two hours in the uk, but still not fast enough for some purposes. Entering a code manually is also not convenient and is more error prone. its useful and widely used but not a replacement for card payments.
In Sweden, we use Swish, you enter the phone number, not bank account. Everyone has it and connect the app to their bank account, so payments are instantly in your bank account.
A more specific, but not commonly used, term is "giro transfer" (coming from an Italian word). That's a payment where the sender pushes money, as opposed to the receiver pulling it, as they do with a cheque or a card swipe. In the past you'd send a letter (which is why it was inconvenient), but nowadays you log into my online banking page, enter a destination account number, amount of money to send, and a note, and click "send", and the money is transferred somewhere between immediately and three working days depending on which system you're using. This capability is very obvious to non-Americans and I'm sure even to Americans, is an extremely obvious thing that any banking system should have...
The key difference here is that you communicate with your bank, giving them a direct instruction to send money to the recipient at their bank. With cheque or card, the recipient communicates with the recipient's bank, to forward an authorization written by you, which is sooner or later verified against your bank. Which is convenient for you, but involves more steps.
Basically this, but through a web form, the fee is €0.50 (recently lowered to €0.00) and the transfer is sometimes instant, other times still takes 2 business days, but you can show the recipient the proof that you sent the transfer and get the goods immediately.
It's commonly a low volume - high value transaction, so they can charge that much. I have used them to buy houses and change banks. But not to buy a car - because car dealers are evil and there's no way to easily reverse one when the dealer stiffs you.
American retail banks are so heavily relationship based that there's zero competitive pressure on pricing, even for things that people use quite a bit more than wire transfers. For example, it's completely trivial to find savings accounts paying a 3.50% interest rate right now, but the largest banks offer more like 0.03%.
That's not the American way. Our services are both expensive and slow. You see, it's about freedom! We are the Most Free (lol, sorry) and therefore corporations are free to be bad in both ways simultaneously. :D
Because it would cost money to upgrade our financial infrastructure and processes.
Americans aren't opposed to it. Like so many problems with America, our institutions are simply opposed to anything other than maximal profit extraction at any and all costs.
Americans are, however opposed to the kind of national ID system you'd want for this kind of national banking scheme. For some reaon, they think it's more private or secure to use a 9-digit number assigned at birth.
I’m going to assume this is a good faith comment, but I encourage you to understand that Europe and the US are different places, with significantly different ecosystems.
I also encourage you to read about Chesterton’s Fence. Make sure you understand why something exists before you think about how to replace it, then maybe you won’t see Americans’ use of credit cards as “irrational,” but instead, reasonable under the circumstances that exist.
That said… the US did roll out FedNow (similar to SEPA) but because the US banking ecosystem is more fragmented, adoption takes a while.
Wire transfers here are expensive and don’t provide consumer benefits (cash back, credit options, consumer protections like fraud and chargeback, or merchant coupons). In your example, if an unscrupulous store pockets the credit card payment, the credit card / issuer will often reimburse your purchase. (This is a law in the US.)
> In your example, if an unscrupulous store pockets the credit card payment, the credit card / issuer will often reimburse your purchase.
This is true in the EU too. It’d also why you don’t tend to pay for goods and services via transfer unless it’s a very high value item and you have a contract to go alongside it.
Zelle is starting to be a thing and those transfers are pretty instant in my experience. No fees, no delays, no chargebacks, it's amazing. I use it to cover living expenses for a couple friends that don't have jobs or disability benefits.
Stopped using Zelle after a friend sent a small amount (~$60ish) and it just disappeared into the ether. His bank couldn’t find it, my bank never got it, Zelle kept telling us to speak to our banks.
>it could also pocket money that would be paid by CC.
No.
The card processor will return the customer's funds for various reasons. In many cases, "no reason" is sufficient for a chargeback, especially if you are dealing in intangibles, such as software licenses or digital media. In addition to returning the customer's funds, the merchant is typically penalized a "chargeback fee". This means as a merchant, if your chargeback fee is $25 and the product is $5, one chargeback can set you back 6 sales.
For these reasons, as well as other minimum rates, certain price levels are untenable. Consequently, many products are either not sold at all or sold at a much higher price.
The conditions make it more sensible for the merchant to sell high priced items to less troublesome customers. The percentage of the card processor's fees are relatively less. The probability of a chargeback is lower. As you have less customers, you can more easily provide support and contact them directly.
Was wondering what anyone's experience with chargebacks are in general. I could imagine that, in the worst case, if combined with 'card testing' as a merchant you could immediately get slammed with thousands in unavoidable charge back fees? Maybe i'm hyperventilating but thats huge, really. I hope theres some stop gap.
Yes, that can absolutely happen if you don't have the right controls in place. If you get too many chargebacks, the card networks will kick you from the system.
Card testing won't (usually) do it, because that doesn't (usually) generate chargebacks[0], but yes, you will absolutely get smacked with fees if it happens. It really sucks.
In the case of fraud (like the article's example of a thieving storefront), banks can simply reverse the transfer. This is not an all-or-nothing deal where CCs are always safe because of theoretical chargebacks, and bank transfers are not.
Also: no-reason chargebacks are absolute BS. I worked on a PSP for a largeish adult entertainment business, and I remain convinced that most porn chargebacks are a case of "post nut clarity".
> In the case of fraud (like the article's example of a thieving storefront), banks can simply reverse the transfer. This is not an all-or-nothing deal where CCs are always safe because of theoretical chargebacks, and bank transfers are not.
US wire transfers generally can't be reversed --- sometimes, if an error is noted immediately, and the destination bank cooperates, they'll send the money back; but the recipient can pull cash out immediately or wire the funds somewhere else immediately, and then your recourse is through the courts. ACH transactions are like checks; they can be reversed, but only if there was a mistake or they were unauthorized, not because of a service complaint; again, if you have a service problem, recourse is through the courts.
I'm not sure how that works on the continent for transfers, but with cards or PayPal the chargeback/dispute policies are usually pretty clear. Basically, the merchant is always wrong for even being in the neighborhood of a disputed transaction. If you don't have a signed delivery confirmation for your card-not-present transaction, you're out of luck.
Chargebacks are for unauthorized transactions and broken contracts, not anything you regret. Attempting to chargeback an authorized transaction where you received the goods or services is a felony.
Also a chargeback is what the bank does to the merchant. From your perspective as the end user, you don't do a chargeback. What you do is you complain to your bank and they decide how to proceed from there.
We also have usury, private credit rating services, transaction reordering, payday loans, charging the unbanked to cash their paychecks, required minimum balances, dark patterns, zombie subscriptions, and probably a dozen more grifts.
Our economy is now financialization of everything, rent seeking, wealth transfer instead of wealth creation, ad nauseum.
I'm nostalgic for when we could create wealth by making and doing, and punished people for stealing. (Perhaps it was never true, I've always been delusional.)
The author mentions the storefront pocketing the money, that seems implausible? If an unscrupulous storefront can pocket money that would be wired, it could also pocket money that would be paid by CC.
And then there's the weird thing about payment volumes...that's been a solved problem for half a century?