Friday, November 14, 2014

New Payment Systems Processes for Dispute Mitigation

Banking associations, clearing house associations, and central banks have rules and laws governing payments made in error. However the payment architectures described in this blog such as small value gross real time payment systems, push payment architectures, and issued digital currency have little in place to protect payers that move value to the wrong payee. Reversals used by debit card networks or voids used by credit card networks will not work with these new types of payment systems. Imagine reversing a digital currency payment and then imagine how ne’er-do-wells may exploit such a function. Similar security concerns exist for nullifying transactions using the evolving types of payment methodologies discussed in this blog. The other form of dispute processing designed for the unhappy payer, also needs a transparent and fair dispute mitigation process.

Issued (notably not mined) digital currency has the best prospects for dispute mitigation because properly designed digital currency contains more than value; it contains logic to process data about its container and other environmental factors. Further digital currency can have logic that signals the correct disposition of the goods (services have tougher hurdles) exchanged for the digital currency. 

For example, a consumer sends a digital amount to a retailer for an item marked with a universal product code (UPC). The currency determines if it arrived in the right till by checking public attributes of the till such as its certificate and perhaps a known precise geographical location. If the environment does not meet the expectation of the currency then it revokes its own certificate and if possible transmits the action to its certificate authority or some yet to be invented currency monitoring body.

If the currency finds its new environment matches expected after-transaction criteria then it signals OK and that status transfers to the brick and mortar security monitors mounted at exits. The payer walks past the monitor that matches the payment initiating device and the product UPC and allows an exit without raising an alarm.  On-line merchants may have more complex processing steps such as sending the initiating device the periodic status of the UPC as it moves from warehouse to shipper to payer door.  If the movement does not occur as expected within the times declared by the merchant then the buyer may have a legal right to revoke the digital currency certificate.

Smart tags too may add to the new automated dispute processing infrastructure. If the smart tag determines a jolt occurred past a known threshold then the tag record the fact and on arrival transmits the exact geographic location and time of the jolt to the payer and thus the entity liable for the damage.

Real time payments and push payments do not bring working code into transactions, however initiating and receiving devices attaching various data with payment information can precisely identify what the payer expected to purchase and when a transfer of goods completes after payment.  The smart tag recording of damage still applies. 

It is difficult to estimate the cost for exotic dispute mitigation infrastructure for modern payment methods, however no doubt the processes will be more satisfactory than the methods in place today with payment cards, their obscure rules, disgruntled merchants, and their custom.

Next Blog: Consequences of anonymous payment methods

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