Original Credit Transactions – What is OCT?

Real-time payments, a rapidly emerging trend in the payments industry, owe their success to technologies like original credit transactions (OCTs). These systems, integrated seamlessly into our daily lives through modern smartphones and digital wallets, are revolutionizing how we handle funds for various transactions.

Understanding technologies like original credit transactions (OCTs) is crucial for business professionals. These systems are the backbone of modern payment methods, and comprehending their workings and benefits can empower professionals to make informed decisions about their payment systems.

What Are Original Credit Transactions?

Card networks such as Mastercard and Visa offer a variety of transactions. An Original Credit Transaction (OCT) is a unique type that “pushes” funds directly into the account associated with a specific debit, prepaid, or credit card number, provided the card issuer has enabled it to receive quick fund transfers.

Conventional credit transactions function similarly to an inverted payment. After going through the typical authorization and batching procedures, it takes several days for the money to get in the recipient’s account. On the other hand, an OCT transfers money considerably more quickly, albeit the speed varies based on the issuing bank. Many users experience almost instantaneous financial transfers because issuers are required in specific markets to make funds from an OCT available within thirty minutes. This lends the procedure an air of efficiency.

How Does the Original Credit Transaction Work?

Visa’s Original Credit Transaction (OCT) method provides a seamless way to transfer funds directly to a recipient’s Visa account, often forming part of a three-step sequence:

• Account Funding Transaction (AFT): This debits (pulls) funds from a sender’s Visa account and transfers them to a merchant or intermediary.
• Original Credit Transaction (OCT): Credits (pushes) funds directly into a recipient’s Visa account, allowing for a streamlined and efficient payout.
• Account Funding Transaction Reversal (AFTR): Optionally credits (pushes back) funds to the merchant’s Visa account, typically in scenarios where an OCT authorization is declined.

This sequence provides a flexible and efficient transfer system, minimizing delays and facilitating direct payouts. Mastercard’s MoneySend OCT payment method follows similar principles, offering comparable efficiencies across different card networks. The OCT sequence enhances the user experience by delivering speed, convenience, and reliable fund transfers, benefiting businesses and consumers.

What Are the Use Cases for Original Credit Transactions?

OCTs, account funding transactions (AFT), and their reversals are crucial in financial transfers.

Businesses with extensive client and supplier networks, such as freelancers and transportation services, can benefit from direct payouts through OCT, simplifying employee payment processes. These payouts must comply with local tax laws, which can streamline payments to drivers or freelance employees, making the process easier and reducing costs.

OCTs, available through Visa and Mastercard, can also supplement existing remittance methods, providing a more accessible and cheaper way for immigrants to send money to their families. While wire transfers are still widely used, OCTs are gaining ground as a convenient alternative. Additionally, microfinance companies can use OCTs to issue short-term loans directly to clients’ payment cards, reducing loan issuance costs and offering a convenient repayment method.

The Benefits of OCTs for Merchants

OCTs offer numerous advantages, particularly for merchants engaged in online business.

• Customer Satisfaction: The swift processing of an OCT can lead to higher customer satisfaction and loyalty. This, in turn, fosters repeat business and boosts overall revenue.
• Empowerment and Control: OCTs provide unmatched convenience and flexibility compared to other payment methods. The quick turnaround time for fund transfers allows merchants to control their finances while ensuring timely customer payouts, empowering them to manage their business transactions efficiently.
• Save Time and Money: OCTs save merchants time and money by eliminating the need for check processing and other slow, manual payment methods. This direct transaction process allows merchants to manage funds efficiently and quickly distribute customer payouts.
• Reduce the Risk of Chargebacks: Chargebacks pose a significant risk to online merchants, potentially leading to the closure of their merchant accounts. A fast and reasonable refund policy using OCTs can help mitigate the chances of customers filing chargebacks.
• Works from Anywhere: OCTs can be managed entirely online with an online payment processor, eliminating the need for point-of-sale processing. All that’s required is the customer’s card information, making transactions convenient and accessible from anywhere.

What Are the Different OCT Products?

Several financial institutions and payment service providers offer products that support Original Credit Transactions (OCTs). Two prominent examples are Visa Direct and Mastercard Send.

• Visa Direct:

Visa Direct is a payment method that allows businesses and customers to send money directly to Visa cardholders. A “push” payment system enables originators, such as merchants, to send payments directly to Visa cards from their systems. A connection to Visa’s network processing (VisaNet) is required to participate in Visa Direct.

This can be achieved through a payment gateway, a processor, or an acquirer. Every Visa Direct program needs Visa’s approval before launching. This involves completing a Visa Direct Program Information Form (PIF) outlining the program’s scope and controls, including details about the Bank Identification Number (BIN), domestic and cross-border parameters, processors, and third-party agents.

• Mastercard Send:

Mastercard Send is a payment service that allows businesses, financial institutions, and digital merchants to send and receive money electronically. This service is available to both Mastercard cardholders and non-cardholders. Mastercard Send offers faster transactions than ACH payments, with digital payments completed within seconds and all money transfers finalized within 30 minutes.

It is also safer than cash or checks, incorporating transaction limits and cross-border blocks to prevent money laundering. Merchants wishing to participate in Mastercard Send must complete and submit the Mastercard MoneySend Participating Institution Form (Form 1060). After approval, a separate enrollment process is needed for the MoneySend API.

All subsequent Mastercard Send transactions are routed through the Mastercard Worldwide Network using the Send API, Dual, or Single Message System. To connect to this network and access OCTs, participants can either use a Mastercard solution, develop their platform, or engage the services of a third-party provider.

What Are the Drawbacks to Consider?

Original Credit Transactions (OCTs) offer a variety of benefits, such as speed, convenience, and cost reduction, making them an efficient choice for both merchants and consumers. However, there are some notable drawbacks and challenges to consider:

• Chargebacks: One of the most significant concerns is the risk of chargebacks. This can occur if the cardholder’s card is not set up to receive fast fund transfers, leading to potential disputes and chargeback fees that can increase chargeback rates overall​. Sometimes, merchants can take additional steps to ensure cards are authorized to receive OCTs and minimize chargebacks​.
• Regulatory Compliance: Visa mandates for OCT transactions require capturing specific customer data for certain geographical regions, which can add complexity to transactions and processing.
• Dependency on Bank Infrastructure: The speed and efficiency of OCTs depend on the issuing bank’s ability to handle the transaction quickly. In some markets, OCT funds must be available within 30 minutes, but this can vary​.
• Security Risks: Although OCTs leverage the security infrastructure of card networks, they still pose a potential risk, especially if there is an issue with the transaction or if a card isn’t configured to accept fast fund transfers​.
• Limited by Acceptance: OCTs depend on a participating bank or payment gateway that supports Visa Direct or Mastercard Send, which might limit its reach in some regions or among some users​.

Are Original Credit Transactions Susceptible to Fraud and Chargebacks?

Original Credit Transactions (OCTs) can be subject to fraud and chargebacks.

Fraud can manifest in several ways, including “true fraud,” where unauthorized transactions occur due to compromised account information, such as hacking, phishing, or counterfeit cards​. The cardholder can initiate a chargeback to reclaim their funds​in these cases.

Chargebacks can also occur for various reasons beyond fraud, such as processing errors, consumer disputes, or friendly fraud. Friendly or chargeback fraud happens when customers dispute a legitimate charge, potentially due to misunderstandings, delivery problems, or intentionally trying to game the system.

To manage these risks, businesses should implement fraud prevention measures like fraud detection software, robust security protocols, and transparent transaction records​. Effective chargeback management, including clear return and refund policies, can help mitigate losses from chargebacks and provide a streamlined process for resolving disputes.

Conclusion

Original Credit Transactions (OCTs) are revolutionizing real-time payments, providing unprecedented speed and efficiency. Despite challenges like chargeback risks and regulatory complexities, OCTs offer significant benefits for merchants and consumers. They enhance customer satisfaction, save time and money, and facilitate various financial operations, including freelance payouts and remittances.

Supported by leading card networks like Visa and Mastercard, OCTs are seamlessly integrated into services like Visa Direct and Mastercard Send. While not without drawbacks, proactive measures can mitigate risks. Overall, OCTs represent a pivotal advancement in modern payment systems, offering a compelling solution for fast, efficient, and secure fund transfers in today’s digital economy.

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