What are Original Credit Transactions & What Do They Offer Over Conventional Payments?
Real-time payments are swiftly becoming the gold standard in the payments industry, thanks to their speed and seamless integration into everyday life. Thanks to the modern smartphone, your credit or debit card details are saved in Apple Pay or Google Wallet, with funds at your fingertips, ready for a host of transactions.
What you might not realize is the role of technologies like Original Credit Transactions, or OCTs, in powering this seamless experience. Let's delve deeper into what OCT payments are, how they operate, and the numerous benefits they offer.
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What is an Original Credit Transaction?
- Original Credit Transaction
An Original Credit Transaction (OCT) is a specific type of payment method used in the financial industry. A payment service provider, such as a bank or a financial institution, directly credits a payment to the recipient's card or account. This is typically used for services like direct deposit of payroll, government benefits, or tax refunds.
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In the context of card networks like Visa or Mastercard, an OCT is a way to transfer funds directly to a cardholder's account. This is often used by businesses for purposes such as disbursing funds to customers, including refunds, cashback rewards, or other types of payments.
Notably, OCTs have also been adopted in the context of payment processing for online marketplaces, peer-to-peer payment platforms, and other digital financial services. These types of transactions are often faster than traditional bank transfers and can provide a more convenient option for users who want to receive funds directly in their card accounts.
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Keep in mind not all cards are eligible to receive OCTs. Eligibility is often determined by the card issuer and the rules of the card network. Each transaction must also comply with the applicable regulations and standards for financial transactions.
Is an Original Credit Transaction a “Push” or “Pull” Payment?
If you’re wondering how these two payment types are linked, let’s take a closer look at them from a functional perspective. For instance, “push” and “pull” payments refer to the two ways money can be moved between accounts. An OCT is a type of “push” payment, as the funds are pushed from the payment service provider to the cardholder's account.
The sender initiates the transfer of funds from their account to the receiver's account. The sender has control over when and how much money is sent. For an example, think about logging into your bank account and transferring money to a friend's account.
In the context of financial services, OCTs can be used alongside account funding transactions, or “AFTs,” to facilitate a complete transaction cycle. For example, a user might use an AFT to load funds onto a prepaid card (pull payment), then spend those funds at various merchants. If they need a refund from a merchant, the funds could be returned via an OCT (push payment).
Learn more about AFT transactions
OCTs and AFTs work in concert to allow funds to be moved into and out of accounts. This provides the flexibility and control needed for financial transactions to occur.
Why Use an Original Credit Transaction?
There are lots of reasons why people would allow original credit transactions. It offers several advantages for both businesses and consumers. Here are some of the key benefits:
Speed
OCTs are often faster than traditional bank transfers. This can be particularly advantageous for businesses that need to disburse funds quickly, such as for refunds, rewards, or other payments.
Convenience
Receiving funds directly on a card can be more convenient than other methods. They don't need to deposit a check or make a trip to the bank. The funds are immediately available to spend or withdraw.
Reduced Costs
In many cases, OCTs can be less expensive than other types of fund disbursem*nts. They can reduce administrative costs and resources associated with paper checks, for example.
Global Reach
OCTs enable global payments, as long as the recipient's card is part of a participating network, like Visa or Mastercard. This broadens the potential customer base for businesses.
Security
OCTs leverage the security infrastructure of card networks. This can include fraud detection and prevention measures, which can give both businesses and consumers peace of mind.
Traceability
Each OCT carries a unique transaction identifier that can be used for tracking and reconciliation purposes. This can simplify accounting and auditing processes.
Versatility
OCTs can be used in a variety of contexts, from refunds to rewards to marketplace payouts. This flexibility makes them a useful tool for many different types of businesses.
You should now have a better understanding of how OCTs work and why you might want to use them. But, how do you actually go about initiating one?
Popular OCT Products on the Market
Several financial institutions and payment service providers offer products that support original credit transactions. Take Visa and Mastercard, for instance.
Visa Direct and Mastercard Send support OCTs (and AFTs) through their payment processing services. These are typically available to businesses and financial institutions rather than directly to individual consumers.
Visa Direct for Merchants To participate in Visa Direct, one must establish a connection to Visa's network processing, known as Visa Net. You can achieve this through a payment gateway, a processor, or an acquirer. Before launching, every Visa Direct program requires Visa's approval. This process involves completing a Visa Direct Program Information Form (PIF), which outlines the proposed program's scope and controls, including details about your Bank Identification Number (BIN), domestic and cross-border parameters, processors, and third-party agents.
All subsequent Mastercard Send transactions should be routed through the Mastercard Worldwide Network, using the Send API, Dual or Single Message System. To connect to the Mastercard Worldwide Network and access OCTs, participants may need to either use a Mastercard solution, develop their own platform, or engage the services of a third-party provider. 
Mastercard Send for Merchants To participate in Mastercard Send, merchants are required to fill out and submit the Mastercard MoneySend Participating Institution Form (Form 1060). After approval, a separate enrollment process is required to use the MoneySend API.
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Many other companies in the payment processing industry offer services that support OCTs and AFTs. These services are typically aimed at businesses rather than individual consumers.
PayPal supports a variety of payment types, which can include OCT-like transactions. For example, PayPal allows users to send money directly to others, which is similar to an OCT. The same applies for providers like Square and Stripe.
The specific services and capabilities offered by each company can vary, and not all services are available in all countries or to all types of customers. For the most accurate and up-to-date information, it's best to contact these companies directly or visit their websites.
Potential Downsides of OCT Products
Like any other payment method, original credit transactions also suffer from the occasional hiccup. While it’s true that OCTs offer benefits, they also have potential downsides. Just a few of these include:
Eligibility Restrictions
Not all cards or accounts are eligible for OCTs. One must comply with the rules of the card network and the card issuer, as well as the applicable financial regulations.
Dependence on Technology
OCTs rely on digital technology and internet access. If there are technical issues, or if a customer does not have reliable internet access, this could cause problems with transactions.
Security Risks
While OCTs leverage the security infrastructure of the card networks, they still carry some level of risk. Fraudulent transactions or data breaches are still possible. Thus, businesses need to ensure they have robust security measures in place.
Transaction Fees
Fees may apply to OCTs, depending on the payment service provider and the specific circ*mstances of the transaction. These costs need to be taken into account when deciding whether to use these types of transactions.
Regulatory Compliance
Businesses using OCTs need to ensure they are complying with all applicable financial regulations. This can include Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, among others.
Customer Education
Customers may not be familiar with OCTs and how they work. Businesses may need to invest time and resources in educating their customers about these types of transactions.
As with any financial service, it's important to weigh the potential benefits against the potential downsides and risks. Businesses should carefully consider their specific needs and circ*mstances before deciding whether to use OCTs and AFTs.
Can OCTs be Subject to Fraud & Chargebacks?
There’s one final potential pitfall of original credit transactions that we need to address: the risk posed by chargebacks.
This typically occurs when a cardholder's account isn't configured by the issuer to receive fast fund transfers. Visa has a designated reason code 13.8 – Original Credit Transaction Not Accepted, for this situation.
Moreover, some countries prohibit OCTs entirely. If an OCT is directed to a card issued by a bank in these regions, the bank may instigate a chargeback. This means that the funds are returned to the merchant's account. This contrasts with typical chargebacks, in which money is deducted from the merchant’s account. However, an OCT chargeback will still mean incurring chargeback fees and can increase one’s overall chargeback rate.
Merchants can consult with their acquirers and payment processors to determine if there's a mechanism via the payment interface to assess this risk before processing. It's crucial to conduct due diligence to understand if OCTs are allowed in the regions in which they operate, and to identify institutions that do — and don't — accept them.
Lastly, when manually entering payment details for an OCT, it's crucial to verify the accuracy of the data input. Since OCTs bypass the standard authorization process, it's possible for a transaction to be processed to an incorrect account number due to a typing error.
