Digital Payments: Cautionary Tales of Overreliance

If your trust in electronic payments wanes, you’re not alone. Practically every day, another major glitch emerges in the processing of payments. The aggregate financial impact of these hitches isn’t known, but negative financial and reputational effects are clear as day in each fallout.
Digital Payments: Cautionary Tales of Overreliance
In early July, for example, the e-commerce retailer Etsy experienced snags in processing transactions. And this isn’t the first time it has happened. The Etsy comments page regarding its most recent “bug” is now at 729 pages, illustrating the extreme frustrations of merchants and consumers. One seller remarks, “Etsy you have ruined our businesses. We are not going to recover from this. Customers will not buy here. Word regarding a defunct payment processor spreads to tens of thousands in a blink of an internet eye...”
In another display of disruption, 132,000 RushCard customers were locked out of their prepaid card accounts for several days, proving costly for hip-hop mogul and creator Russell Simmons. RushCard has since agreed to pay approximately $19 million to reimburse customers for fees and other costs incurred during the glitch.
Similarly, right after Super Bowl 50, mobile payments service Venmo suffered a service interruption “due to high volume,” a spokesperson said. Venmo didn’t explain the outage, but some people who experienced issues theorized that the volume of football bets being paid off using the digital wallet triggered the service interruption. And later that month, some Apple Pay users seeking to link their Visa debit and credit cards to the service were prevented from doing so for seven hours.
Mobile payments have gotten off to a slower start than many financial experts expected, because many people think their banking needs are being met without them or do not trust them, a March 2015 Federal Reserve Board survey found. Some reasons non-mobile payment users shun mobile payments is that they believe it is easier to pay with cash or credit or debit cards, and they are concerned about the security of the technology, uncertainties which are reinforced by these examples of mobile payment problems.
Supporting these sentiments is the late 2015 Cardtronics Cash Survey, which found that while people have access to a greater variety of payment methods, cash remains widely used and frequently selected for making all sorts of payments. For instance, 78 percent of survey respondents prefer to pay people back with cash and 63 percent favor cash to make convenience store purchases. Fifty-two percent prefer cash at the grocery store, edging out debit card use, and 53 percent like cash best at a restaurant.
Why? In addition to being convenient and easy at the checkout, cash just works. Every time. Indeed, the resiliency of cash likely draws attention to those frustrating glitches that continue to plague anyone trying to rely completely on digital. Cash gives us a dependable first choice or a back-up plan when digital fails to consistently perform.
David B. McCrary
EVP – Product Management & Innovation

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