Banks and credit card associations

Business and credit card associations and the real-time VAT solution

Banks

Banks can have a leading role in the application of RTvat, as they have the opportunity to act as the payment separating engine for funds deposited by their business clients. Alternatively, there could be an option for a third party processor to act as a clearer if a bank does not wish to perform this role.

Banks can also benefit by being able to issue purchasing cards for use by merchants in business-to-business transactions; again, there is an alternative option whereby a third party issuer may be used.

As well as the direct benefit to banks of being able to collect transaction fees on all funds submitted via the collection system and transferred to the tax authority, there is a potentially even greater benefit in the reduction of accounting and monitoring of their business customers; the bank will have a far better overview of the customer's true financial position, greatly reducing the risk of bankruptcy due to unanticpated VAT demands.

Credit card associations and payment processing companies

The technology element of the RTvat solution is based on methodology and infrastructure already well established in the credit card industry. There is an opportunity for existing providers of theses facilities to extend their business by developing systems to handle the real-time transfers of funds between the banks and the tax authorities, as well as the cross-border system transferring transaction data between the state-based servers and the central intra-EU funds netting mechanism.

As the existing systems are operating on typical response times of 2-3 seconds and the RTvat solution requires only daily netting, it is anticipated that there should be little difficulty in adapting and applying the existing systems to the new application.

An additional element in widespread use across the credit card associations is the use of ‘fraud scrubbing’, or potential fraud pattern detection and alert systems. The RTvat solution would incorporate bespoke fraud scrubbing applications adapted from state-of-the-art systems now in use and in development to track the pattern of transactions for each VAT ID and alert the national tax authority to unusual, suspicious or potentially fraudulent activity, with the option to block funds transfer of refunds at pre-specified levels of risk.

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