MasterCard is betting that faster payments will appeal most to corporations and government agencies not for collecting payments, but for disbursing them, particularly for insurance claims.
Through a product called MasterCard Send, the card network will enable near-real-time payments to consumers' debit cards for purposes such as insurance claims or payouts from government agencies. The system is open-loop, so it does not require consumers to have MasterCard-branded debit cards.
"The consumer demand for speed for these types of payments is high," said Barbara King, group head in the MasterCard Payment Systems Integrity Group, adding prevailing methods to execute these types of payments are still dominated by paper. MasterCard is also launching Send to align with the Federal Reserve's push to increase the speed of the U.S. payments system.
MasterCard, which announced Send this morning, is using its own network and partnership with national debit networks to process transactions. It has not set transaction fees, though the service provider could establish its own fees. The card network hopes the service will be attractive to banks, insurance companies and other financial services providers as a way to quickly provide funds following a triggering event, such as an accident.
"We're not reinventing the wheel, there is a great 'network' of debit networks, if you will, that do a great job of transferring funds to consumer debit accounts," King said. "We're bringing speed to that process."
MasterCard will retrieve these payments directly from the business or government agency, and its existing payment processing relationships with banks will ensure compliance with anti-money laundering regulations and security standards such as PCI, King said
The card network is targeting a variety of organizations, and there's also a person-to-person component for large payments such as real estate transactions, though the use cases King described mostly pertained to insurance.
For example, an insurance adjustor would be able to use existing mobile point of sale technology to send funds directly to a consumer's account after settling on an amount for a car accident. Or a traveler who lost his luggage at an airport could settle the claim with his insurance company and receive the funds on his debit account through and immediate prepaid transfer, King said.
This direct debit replaces an existing system in which vouchers or other documents are mailed, emailed or even faxed to consumers as part of a settlement.
"You no longer need to wait for the voucher," King said. "You can get the payment directly to your account immediately, get into a taxi and go shopping immediately if you're the traveler who had your luggage misplaced."
MasterCard's service would appear to compete with account-to-account transfer services such as PayPal by offering direct transactions without the use of an intermediary. The bank-led clearXchange service also offers government and corporate payments as use cases, though it has existed primarily a person-to-person offering.
MasterCard Send is a U.S. expansion of a government payment system that the card network uses to execute inbound remittance and social benefit payments in partnership with governments in South Africa, Zimbabwe and other nations. MasterCard was less clear about how the U.S. government payment system would workfor example, if it would enable tax refunds to be sent into debit accounts in real time. The U.S. federal government uses MasterCard's Direct Express for tax refunds, though any scenario where a business or government entity is paying is a possible use case for MasterCard Send, the company said.
In emerging markets, MasterCard has used real-time debit transfers to reduce the amount of cash governments are disbursing to citizens. In these regions, it is risky for consumers to carry large amounts of cash.
"A lot of these social benefit programs are reliant on cash or checks," King said. "Our system makes it easier for consumers to transact online, which is safer and more efficient."
Berkshire Hathaway Travel Protection and FreeShipping.com are among Send's first users, MasterCard said in a May 19 release.
MasterCard could face some hurdles in getting insurance companies on board.
Card issuers have attempted a similar model in the past, said Sarah Grotta, the director of the debit advisory service at Mercator Advisory Group, noting prepaid debit cards were used for disaster recovery and one-time payouts, generally around the time of Hurricane Katrina in 2005.
But for general use, the insurance companies "just weren't able to get comfortable with prepaid," said Grotta, though she added prepaid debit does have benefits for the insurance industry.
"When an individual has a catastrophic claim, there can be more than one payment that has to be made," Grotta said. "Being able to ACH this to a card expedites the payment for the individual and is less expensive for the insurance company than issuing multiple checks and potentially having them intercepted in the mail."
A bigger perk for the insurance company is that if they can settle the claim as soon as they are in contact with the insured, and the insured accepts the funds, then it's very difficult for them to go back and try to collect more money from the insurance company, Grotta said.