The MOTO Payments Tale
MOTO payments are a way to pay for something without physically using your card. It stands for “Mail Order/Telephone Order.” In a sense, it can also be seen as a precursor to the culture of online shopping ,we have today.
How it works?
- You order something over the phone or by mail.
- You give the merchant your credit/debit card information.
- The merchant enters your card details into their payment system.
- Your card is charged.
In essence, MOTO payments are like ordering something from a catalog and paying with your card over the phone/ mail.
Well, Let’s turn back the pages!
Evolution of MOTO Payments
Early to Mid-20th Century: The Birth of Mail Order
- Catalogs and Mail: The foundation of MOTO payments was laid with the emergence of mail-order catalogs. Customers would browse through catalogs, select items, and send in orders with payment (usually cash or check).
- Payment by Mail: Customers enclose payment with their order, typically in the form of cash, checks, or money orders.
Late 20th Century: Introduction of Telephone Orders
- Telephone Orders: With the widespread adoption of telephones, customers began placing orders over the phone. Payment was still primarily handled through the mail.
- Charge Cards: Companies like American Express (Amex) introduced charge cards, allowing customers to charge purchases to their accounts and pay later. This marked the beginning of card-based payments for MOTO.
Late 20th Century to Early 21st Century: Credit Cards and Payment Processing
- Credit Card Dominance: Credit cards became the dominant payment method for MOTO transactions, offering convenience compared to cash or checks.
- Payment Processing Systems: The development of payment processing systems enabled merchants to securely process credit card transactions over the phone.
- Virtual Terminals: The introduction of virtual terminals allowed merchants to process card payments directly from their computers, improving efficiency.
- Increased Security Measures: To combat fraud, stricter security protocols, such as address verification and card verification codes (CVV2), were implemented.
- PCI Compliance: The Payment Card Industry Data Security Standard (PCI DSS) was established to protect cardholder data, ensuring the secure handling of payment information.
Erm!
It’s time to get down to business!
The Inside Scoop
When a cardholder decides to purchase via mail or telephone, they provide their payment information — typically including the card number, expiry date, and sometimes the CVV code. This information is either conveyed verbally during a phone call or filled out on a mail order form.
1. Data Collection:
The merchant receives this card information and needs to process the payment. They do this by manually entering the details into a payment terminal or a virtual terminal. A virtual terminal is a secure, web-based platform accessible via a computer or mobile device.
2. Security for Phone Orders:
For transactions conducted over the phone, the merchant may use an Interactive Voice Response (IVR) system. This system allows the cardholder to enter their card details directly using the phone keypad.
3. Authorization Process:
Once the card details are entered, the payment processor takes over. It communicates with the card network and the issuing bank to authorize the transaction. This involves several checks: verifying the card’s validity, ensuring there are sufficient funds in the account, etc
4. Authorization Result:
If the transaction is authorized, it is then queued for settlement. The funds are earmarked for transfer but are not moved immediately. Instead, the transactions are aggregated and processed at the end of the business day.
5. Settlement:
At the end of the business day, the merchant sends all the day’s transactions to the payment processor. The processor then facilitates the transfer of funds from the issuing bank to the merchant’s account. This process, however, does not happen instantaneously; it typically takes a few days to complete, depending on the payment processor and the banks involved.
Hold on…Hold on!
The Bigger picture is here!
Benefits and Drawbacks
Benefits
- Convenience for Customers: Customers can make purchases without needing to visit a physical location or use an online platform. This can be particularly useful for those who prefer phone transactions or have limited internet access.
- Broader Customer Reach: Businesses can tap into markets where customers may not have access to online shopping or have trouble visiting physical stores, or those in remote areas.
- Personalized Customer Service: Businesses can offer a more personalized touch, addressing specific customer needs or providing additional support through direct interaction.
- Less Dependence on Internet Infrastructure: MOTO payments do not rely on Internet connectivity for processing transactions, which can be advantageous in areas with unreliable Internet access.
- Simplicity in Setup: Setting up MOTO payments can be straightforward and may not require complex online payment gateways or integrations, making it easier for small businesses to get started.
While MOTO payments have these benefits, it’s also important to be mindful of potential drawbacks!
- Higher Fraud Risk: Since card details are manually entered and not always verified through secure online systems, there’s a greater risk of fraudulent transactions.
- Manual Processing: Transactions often require manual entry of card details, which can be prone to errors and more time-consuming compared to automated online payment systems.
- Limited Security Measures: MOTO payments have fewer security features compared to online payment systems that use encryption and tokenization.
- Increased Administrative Work: Handling MOTO payments involves more paperwork and manual tracking, which is labor-intensive and increases administrative overhead.
- Potential for Miscommunication: Orders placed over the phone or by mail can be prone to miscommunication or misunderstanding, leading to errors in the order.
- Delayed Settlement: Funds from MOTO transactions take longer to settle, and transfer compared to online transactions, affecting cash flow.
- No Real-Time Updates: MOTO payments generally do not provide real-time transaction updates, which can affect order tracking and management for customers.
- No Recurring subscriptions: As MOTO payment systems do not have robust security systems and technology, they cannot keep records of customer information for subscription payments. They cannot adhere to native rules and regulations of tokenization and other security protocols.
Conclusion:
With the rise of e-commerce, MOTO has declined in popularity. However, it remains a viable option for certain businesses, especially those without online stores, and continues to exist as a support channel for customers who prefer to order by phone or mail.
Pic Credits: Chota Bheem Cartoon.
