Page 90 - ITU-T Focus Group Digital Financial Services – Recommendations

ITU-T Focus Group Digital Financial Services
Recommendations

Title of recommendation Payments should generally be considered irrevocable with exceptions as
specified

Working Group Consumer Experience and Protection
Theme Revocability

Audience for recommendation Regulators

Regulators should ideally establish that digital payments are irrevocable unless the receiving party consents to
the return of the money. However, regulators should recognize that different provisions may be needed depend-
ing on the market context (e.g. whether a validation protocol allows senders to confirm the recipient prior to
sending a transfer), and may be needed for different use cases (e.g. rights and responsibilities may be different in
P2P payments than in merchant payments).

The ability to reverse an erroneous transaction is an important consumer protection, but it also opens the
door to potential fraud. For example, incorrect transactions are common, particularly among low-income DFS
customers, and thus protections are needed so these customers do not lose money. At the same time, fraud is
possible when, for example, a customer claims that a transfer to a merchant was sent to the incorrect number
when in fact it was a legitimate purchase. The customer could thus fraudulently retain the purchased good
and retrieve the payment.

Because of the potential for fraud, regulators should ideally require DFS payments to be irrevocable unless the
receiving party consents to the return of the money. However, in markets where safeguards against incorrect
transactions are insufficient, such as where a mechanism for senders to verify recipients before confirming a
transaction is absent, alternatives may be necessary.

The GSMA Code of Conduct for Mobile Money Providers states that mobile money providers shall develop
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specific policies for handling reversals.
Different regulations and rules may be needed for P2P transfers and merchant payments. For P2P transfers, the
transfer by the sending consumer should be irrevocable without the consent of the recipient in cases where
the payment system used supports a validation or verification protocol. If the payment system used does not
support a validation protocol, transfers may be revocable by the sending party within a specified time limit.
In this case, DFS providers may be allowed to charge the consumer a small fee for the revocation. In either
case, a message or protocol to digitally request an error correction should be supported; this would enable a
return of the sending customer’s funds by consent of the receiving customer.

In general, consumer-to-merchant transactions should be irrevocable without consent of the receiving
merchant. Fraud may be more likely in reversing payments to merchants, and the sums are often larger
presenting larger possible gains from fraud. Allowing reversals of payments to merchants could also harm
the development of a digital ecosystem as merchants may be hesitant to accept digital payments if they fear
they could be reversed.
DFS providers should be encouraged to create mechanisms for consumers to dispute transactions with
fraudulent merchants, and in some specific instances support revocation of funds. For example, PayPal
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describes in detail the situations, time frames, and restrictions on reversing a transaction by a customer.

47 PayPal User Agreement (2016) https:// www. paypal. com/ webapps/ mpp/ ua/ useragreement- full? locale. x= en_ GB

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