Virtual Virtues
Many of us use third party payments almost every day. We book trains and hotel rooms; we buy something online; we buy a friend a gift card… and hardly any of us consider that we’re using a service that’s actively avoided by several major banks. So are they a Bad Thing?
In the vast majority of cases, no, they’re anything but. When you find that bargain destination on Airbnb, you shouldn’t be worrying about whether your money’s heading for the right destination, but it can’t be denied that third-party payments create opportunities for bad actors. Third-party payments can allow opacity in the source, and possibly destination, of funds. Banks, faced with swingeing penalties for even minor compliance mistakes, are understandably cautious and many have withdrawn support for third-party payments. Others have increased their demands for diligence in their clients. Art galleries, for example, may need to execute bank-style KYC on their counterparties for any transaction above a few thousand dollars.
This last example highlights one of the problems: it’s extremely difficult to place a market value on artworks, making them an ideal vehicle for money-laundering. Buying a nest of tables off ebay is unlikely to do anyone much harm. So it’s generally a case of not sweating the mall stuff. But on bigger deals it becomes, well, a big deal. To anyone reading my other rants (and I thank you for and admire your patience), it will come as no surprise that transparency becomes the central issue.
Given that organisations making higher-value third-party transactions are increasingly required to gather KYC information, and that this information should resolve banks’ distrust of the method, we have to turn our attention to the question of dissemination; how well is the KYC data communicated? As set out in other articles and pages such as this one, our eKeyiD ecosystem provides a simple and dependable transport system to keep every party fully informed, but I believe we can go one better still.
A Virtual Reality
If a business needs to onboard its customers in a similar fashion to a bank, why not take things a step further and create a virtual bank account for them? Bear with me a minute while I explain this isn’t as crazy as it sounds. Virtual accounts are used by many fintechs as a flexible way of providing rapid, efficient payments for their clients. For convenience, speed and ease of reconciliation, they present a strong case. Unfortunately , they’re also often even more opaque than third-party payments. We’ll shortly announce the launch of our alternative take on virtual accounts service in partnership with a major card provider. It solves the problem of opacity by making all payments a first-party transaction through the master account of the provider, while using the power of the eKeyiD to carry full KYC and transaction detail from one end of the chain to the other.
Third-party payments will - and should - continue to provide convenience for small purchases through regulated payment providers. But for larger transactions, we encourage banks to look more closely at the completeness of the compliance information; if it’s been done and communicated properly, then the transaction can be as safe as a first-party transfer. And accessing the eKeyiD platform solves that requirement at a stroke. But a rethink of how virtual accounts are managed and operated, could do even more.