Tuesday, October 7, 2014

Building an Altruistic Payment Architecture

Occasionally when I purchase groceries at the supermarket the card accepting device asks if I want to give some money to various causes. I usually decline for several reasons but the overwhelming one is that if I organize my charitable contributions I receive a tax deduction whereas if I impulse give, I do not get that tax write-off.

If the design of payment systems allowed payers to automatically give an amount to the charity or charities of their choice with values of their choice then I suspect that the amount of charitable gifts will increase significantly. If we look at the data protocol standards such as ISO 8583 we see there is room for various amounts and for various fees (not to mention superfluous data that have nothing to do with a financial transaction) but only one payee. By creating payment data protocols with multiple payees and specific amounts for each payee then it is possible to designate charities as co payees. It is also possible to designate sales tax recipients, which may relieve payees of the administrative burden of collecting and paying sales tax.

It is possible to automatically give to charity with the current cumbersome protocols but it too expensive to utilize unless the payment networks allowed a charitable transaction to trail a regular purchase with no extra charge. If they did so then they no doubt would receive a tax deduction and payment service providers could gain good will because they facilitate charitable giving. However, if we could convince the various players involved in a single transaction not to charge for a trailing charitable message, the probability of agreeing to more than one charitable is next to nil.

If buyers used an e-check application (see http://paymentnetworks.blogspot.com/2014/10/a-real-e-check-application.html ) then it would be possible to cut as many checks to charities as the buyer wanted with no extra overhead unless the financial institution charged a fee for each check or for too many checks. However, as the reader(s) of this blog know, I have frequently advocated for the creation of a data protocol specifically for movement of financial data from a personal electronic device (PED) to a point of presence (POP) and from there to a FI with no translation needed.  If that protocol allowed for multiple payees then it would be common practice for payment applications to allow users to configure payments to go to the charities of their choice without needing to do so for each transaction or by planning each contribution. The payment applications keep track of payment so end of the year accounting becomes a simple matter of importing the charitable amounts to the tax preparation process.

Future payment architecture no doubt will allow for multiple payees; however that does not prevent the current payment system providers from allowing the free donation of funds to charities. With a little imagination payment system providers could use the additional amounts field in the ISO 8583 message to accomplish the same goal seamlessly, no trailing transaction needed.

Next Blog: A small equity distribution architecture

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