Sometimes, it’s the little things that create the biggest frictions.
“Pending” charges are a staple of day-to-day financial life, but they can sow confusion for consumers. Every transaction, of course, has its steps and its chain of command.
Wield a card at the point of sale — online or at a brick-and-mortar merchant — and things are set in motion: The bank authorizes the transaction, but the journey towards final settlement can take days, as the merchant captures the sale and the networks behind the scenes clear and settle those transactions.
The consumer sees that “pending charge” on the statement and is never quite clear on what is “open to buy” on their credit card, or what funds are available to spend on their debit instruments. The long road between authorization and final settlement is the gap that has bedeviled card payments for decades as an anachronism of the banking system itself.
The clearing is done in batch processes, rather than in real time, which means, of course, that consumers are left waiting to find out what the post-transaction balance will be.
One of the most glaring aftershocks is overdraft fees, which accrue when consumers misjudge what’s on hand to spend versus what’s been spent.
But with a bit of help from advanced technology, the end of pending charges is, well, pending.
Ansar Ansari, senior vice president, global head of Platform Products at Visa, told PYMNTS’ Karen Webster that artificial intelligence (AI) can help banks “score” the likelihood that a transaction amount will remain consistent from the time a cardholder pays to the time they receive their statement.
Accurate Day-to-Day Funds Available to Spend
That score, rendered through the new Smarter Posting service that is being rolled out in the United States, helps the bank post accurate charges and more accurately manage day-to-day balances.
Using the data gleaned over decades across Visa’s network, with the aforementioned score, issuers (or Visa itself) can offer up a probability that the authorized transaction will not differ from the amount ultimately charged to the consumer.
That visibility is especially valuable in an age where transactions are increasingly complex and increasingly done online — for instance, online shipping of goods ordered on a platform may be impacted by fees or taxes. Booking a hotel or car rental, and even paying for a meal at a restaurant, may wind up showing a difference between the amount authorized and ultimately settled.
In terms of the mechanics, the payments network is using the technology and advanced analytics already extant in its VisaNet +AI suite of services.
Ansari said Smarter Posting uses the data that has been and still is being collected by the payments giant over the past few decades, and which had heretofore been utilized in the fight against fraud.
But as time has gone on, he told Webster, “We’ve been looking at use cases beyond the risk and fraud space.”
He offered up the example of SmarterSTP, which, as introduced two years ago, uses real-time AI to aid financial institutions (FIs) in their bid to manage transaction authorizations when service disruptions occur. That service, he said, has been embraced by more than 500 issuers since launch and has been decisioned more than 5 million transactions in just two years.
“That’s 5 million potential payment declines that we’ve been able to work with successfully,” he said.
He added that with Smarter Posting, at a high level, the cloud of confusion is lifted for account holders.
“The consumer now has the real-time insight into the ‘open to buy,’ aka, the remaining funds available for subsequent purchases,” he told Webster. “The amount that you show to the consumer is the settled transaction, through the actual clearing transaction is still pending [behind the scenes].”
That transparency is especially useful for debit transactions, as consumers can avoid overdraft fees that come with misjudging what’s left in the account.
He added that the predictive power of the model is so strong that the likelihood of the amount varying between payment and final posting is basically nil (especially at merchants such as restaurants) — absent the event of a cancellation.
He noted that Smarter Posting gives the banks the added analytical firepower — chiefly by leveraging Visa’s existing assets — without having to tackle a technological heavy lift.
Some of those same clients are in the midst of piloting and trialing Smarter Posting in the states (which will be and already is opt-in), he said. The service has already been available in Europe.
As Ansari told Webster: “Our expectation is that more clients will see the value in Smarter Posting and leverage this into a better experience for those consumers — because now they’ll have a more realistic, real-time view of what is available for them to spend.”