Every now and then, I’ll have a data analyst or program manager come to me with a question – perhaps they need help putting out a fire, or maybe they just spotted something that’s bothering them.

They’ve seen a payment be posted to a card, and it’s got to be wrong. Maybe the card doesn’t exist and was never activated, never issued, not even within the realm of cards we’re issuing right now. Perhaps the card is closed, or the transaction was posted even though we apparently rejected the authorisation for this payment.  A lot of the time, they want me to fix it! How can we stop this?

The thing is, the way legacy payment networks have grown up – the merchant has the power to do this. The network takes the merchant at face value – the cardholder was in their shop, did indeed purchase the donuts, and has every right to the $5.74. Why should they not be paid? Surely, it’s not the merchant’s fault that it rained that day, and the payment terminal was offline? They weren’t able to obtain an authorsiation, so they could either send the cardholder home packing or just post it without the authorisation. And trust me, I’ve stared down a retail or restaurant manager from time to time who was trying to explain to me that the credit card system was down – if you play your cards right they’ll break out the knuckle buster and take an imprint. Think of our poor taxi drivers, lots of them have no other option. How do you obtain an authorisation with that? It doesn’t even have batteries much less a cell phone modem in it.

I have to say, the network’s solution is fairly elegant. Give the issuing bank a forum to reject the charge – but then the merchant has the chance to re-present. The bank and the merchant can actually do this again if they so choose, but the fees ramp up quickly – and the final step usually involves an aribtrator and a fee in the hundreds of dollars.

C’mon, it was just a $5.74 donut. Who’s going to go to the trouble?

This system made plenty of sense when banks were loaning out thousands to cardholders and making not only good interest, but fees and envelope stuffing marketing opportunities along the way. And it makes a fair bit of sense in the debit world  – by this I mean cards linked back to a chequeing account or other bank account.  If the bank refunds the $5.74 and decides not to pay the networks fee to dispute it as a cost of doing business, they’re going to get it back in monthly fees, future interchange and so on.  But when you look at all the cool technologies and marketing applications out there in the pre-paid space, these things can be deadly. There’s no interest, no long term relationship for each card – no chance to cover that cost of doing business.

Perhaps its time for new rules?