|by Jason Steele|
Credit cards are invaluable when dealing with merchants. The are less so when you are trying to transfer money to an individual. Yes, there is Paypal, but they are a rather aloof, stagnant, and difficult company to deal with. The pretend to be a bank, but with none of the safeguards of traditional banking. You have to have an account to receive money. Only then to they take out a hefty fee and take their sweet time, 3-4 business days, before transferring your money to your bank account.
There Has Got To Be A Better Way
A while back, I took a look at a product called Square. Here was a doodad that you could connect to your smartphone and swipe a credit card. It had a slightly better fee structure than Paypal, and a lot more user friendliness. Now, Visa is prepping to enter the market for personal payments. Unlike Square or Paypal, almost everyone already has a Visa account. With this new system, you would just enter in a credit card number and a telephone or email address that you wish to send money to. The article points out a number of potential flaws. The first is security, but I will grant that a giant like Visa wouldn’t bother to introduce such a system unless they had thoroughly addressed this potential problem. The second issue is the participation of banks, who would have to opt in to such a system. This is a big unknown. Certainly if it works with some banks and not with others, we are back to square one. How frustrating would it be to transmit all that information only to learn that the recipient’s bank was incompatible.
The third issue is also a showstopper, fees. If Visa gets greedy and start charges fees similar to what they charge at a merchant, they will get few takers. People might us this system instead of Paypal, but they won’t use it instead of cash. If they are smart, they will hook people first before attempting to “monetize” the service. I can see this working for Visa even as a free service. People are going to use their Visa more if they are constantly sending and receiving money with it.
Where Will The Money Go?
There are a few issues that the Slate article fails to address. First, how will payments made and received be handled in your account. For example, if I pay someone, will that be seen as a merchant charge, or a cash withdraw. Cash is subject to a much higher interest rate than purchases, and I would never make a cash withdrawal from my credit card. Also, there is the question of chargebacks. If I pay someone for a product or service, and that is not delivered, will I have any recourse?
On the receiving side, will the money be credited towards my balance immediately, or will there be a Paypal like delay? What if the money received exceeds my balance; Will I have access to the cash, or will I have to keep spending on my Visa to use the credit?
Potential And Problems
Considering the worldwide ubiquity of the Visa network, this system definitely has the potential to be a disruptive force in the emerging field of personal payments. Visa will either address the concerns being brought up or they will not. The result will determine if this new system becomes the de-facto standard, or a footnote in history.