When P2P Gets Complicated

The explosive popularity of peer-to-peer payments has led to increasing complexity in dispute resolution. Here are some suggested improvements.

For the better part of 40 years, payment types and the industry’s main players have remained relatively consistent. However, today’s payments landscape is experiencing significant change due to the rapid adoption of digital and peer-to-peer payments.

Although this is an exciting time for the industry, payments-processing companies are facing new challenges because, though new digital platforms are providing slick and fast interfaces for users, certain back-office processes are lagging.

For example, how do consumers dispute a P2P transaction once it has occurred? This has become a significant challenge because disputing transactions in the P2P landscape is very different from disputing traditional card-based transactions.

Despite this challenge, there is no denying the growing popularity of P2P payments. Usage has been continuously rising and shows no signs of slowing.

Zelle, the bank-owned P2P network operated by Early Warning Services, reported processing 1.2 billion transactions in 2020, a 58% increase over the prior year. Venmo, the P2P mobile-phone app owned by PayPal, processed $159 billion in total payment volume for 2020, a 59% year-on-year increase.

Other players include Dwolla and Cash App, as well as new applications designed to run across The Clearing House’s RTP payment rails. Based on current activity in the industry, it is anticipated that the number of P2P solutions and the level of usage will continue to grow at a rapid pace.

In addition, the functions and uses of P2P will continue to expand well beyond their initial use cases. Although commonly referred to as “person-to-person” or “peer-to-peer,” these solutions are being increasingly used to pay businesses and are a popular method of transferring funds between an individual’s own accounts.

Unsurprisingly, this has further exacerbated the issue of managing P2P disputes. More usage means more disputes.

A Serious Risk

Today’s numerous P2P services tend to take differing approaches to resolve P2P transactions that have been disputed. These can range from “doing nothing” (recommending the payer/payee resolve the matter directly) to performing various levels of payments research and forensics.

While terms and conditions may technically absolve P2P service providers of any responsibility, many still choose to get involved. This is often driven by a desire to maintain strong customer relationships—and to avoid any headline risk or social-media blowback. This is particularly true for the financial institution supporting the underlying account because the threat of a reputational hit can be very real.

While the consumer-facing P2P experience has made important strides forward, many supporting back-office processes have yet to keep pace. In turn, dispute-resolution routines typically follow the same timelines established for legacy payment methods.

The underlying ground rules and protections most consumers have come to expect with their debit/credit cards can also differ when it comes to P2P payments. For example, many of the checking-account terms and conditions users view as standard, like fraud protections, may not exist at all with P2P payments.

This can open the door to customer dissatisfaction, which can often be directed towards the customer’s financial institution (even when the bank or credit union is not the provider of the P2P app).

Regardless of the details, disputes are a customer-service imperative and should have the same diligence and responsiveness applied as any other issue. For banks and credit unions, P2P disputes could be a serious risk to their reputation.

A Complicating Factor

It is an inconvenient reality that payment-processing errors can—and do—occur. These may include posting to the wrong payee account, posting of an incorrect amount, duplicate payments, or the failure of a payment to post.

Note the importance of “posting” in that list, which highlights another complicating factor. All that really matters to most payees is that the transaction is reflected in their account and the funds are made available to them. Few users of these services realize that the actual funds settlement can occur behind the scenes as much as one to two days later via the automated clearing house network.

Although there is little reason for most users to grasp such nuances (after all, the point of these products is to simplify life), they nonetheless increase the likelihood of back-end complications. For most P2P transactions, payer funds are drawn from bank accounts, although they may also be settled using balances kept on account in wallet-based systems like Venmo, Dwolla, and PayPal.

The dispute-resolution fine print for these wallets largely pushes responsibility for discrepancies onto the payer, absolving the networks for user error. Interestingly, only the bank-owned Zelle makes explicit reference to Regulation E in its terms and conditions, which typically governs transaction account and payment card disputes involving financial institutions.

One surprising aspect about the management of P2P disputes is that the total time required to research and return disputed P2P funds is similar to that of traditional payment channels. Even though a funds-transfer operation may occur in near real time, obtaining a reimbursement for an errored funds transfer can take weeks or months to complete.

Some Suggested Changes

As mentioned, this out-of-sync quality between payment processing and dispute processing is one area in need of significant improvement. Some changes that could facilitate this improvement include:

• Procedures to shorten dispute-research time

One way to shorten overall dispute-resolution time is the adoption of procedures to decrease research time. This might include decreasing the amount of paperwork or reducing the number of steps to resolve dispute issues.

• Increased use of computerized workflows to process disputes

Any formal set of procedures, like dispute processing, requires training. Depending on the complexity of procedures, training can be extensive. Training and resulting processing can be shortened by use of customized “intelligent” workflows that automatically walk disputes personnel through the correct processes. This might include screens that are automatically populated with data that is appropriate for the specific task at hand. In addition, data-entry fields can be automatically presented to only solicit and collect required information for the processing step under consideration.

• Automated warnings and alerts

Because dispute procedures typically include assorted time windows for participants to complete their work, a computerized dispute system could automatically route warnings to supervisors noting that a processing time limit is about to be breached. Similarly, alerts can be issued when time windows have been reached. This can ensure that disputes are not forgotten or abandoned, improving quality and maintaining target times for completing dispute research.

• Reduced manual processing

Increasing automated processing of disputes reduces the amount of manual processing that must be completed. This improves processing consistency, facilitates compliance with dispute procedures, and shortens dispute resolution. Used in combination with refocused dispute procedures, it may be possible to eliminate manual processing of certain dispute steps.

• Increase integration with supporting systems

Supporting systems for dispute processing might include document generation, email distribution, fax transmissions, and gateways to other networks. Incorporating these additional supporting systems as inherent components of automated dispute processing further reduces the need for additional manual intervention and also reduces processing time.

These steps will shorten processing time from weeks or months to days, which would be a major advance in P2P dispute processing.

—Jack Baldwin is chairman of BHMI