New payment service using same technology as Zelle and Venmo cuts fees for Visa and Mastercard

For decades, retailers have protested visa fees
and mastercardMA
We charge to accept credit and debit cards. “Pay by Bank” is the latest effort to help people avoid these fees by paying directly from their bank account.

Financial services consulting firm Sionic has launched bank payments in the US in partnership with MX and Google Cloud Services, companies that connect fintechs to users’ bank accounts. This product allows the merchant to reduce his card acceptance fees ranging from 1% to 3%. Success in the US depends on merchants’ ability to motivate consumers to switch from high-use credit and debit cards.

Bank payments allow consumers to bypass the Visa and Mastercard payment rails and pay directly from their bank account. It’s already popular abroad, especially in Asia and Europe, but so far it hasn’t caught on in the U.S. market, where 84% of adults have at least one credit card of hers. Credit and debit cards are becoming more popular in the United States, but card networks face scrutiny as interchange fees—the fees charged to merchants to cover the cost of processing transactions—continue to rise. increase. In 2021, merchants were billed $77.5 billion A credit card fee that is split between the issuing bank and the card network. In March, Visa and Mastercard were preparing to raise interchange fees even further. The Wall Street Journal reported.

Bank Pay products use the Real-Time Payments (RTP) network operated by The Clearinghouse, an organization owned by 23 major banks, including Citibank and Wells Fargo.WFCMore
, with lower fees than card networks. The clearinghouse’s real-time payment network is also used by Venmo and Zelle to facilitate money transfers. Launched in the United States in 2017, RTP aims to speed up bank transfers and settle instantly. This contrasts with the number of days it takes to clear most bank transfers over the ACH network.

Sionic CEO and Founder Ron Herman said:

Customers scan a QR code at checkout to use Sionic’s bank payment option called ULink. This option may also appear to the consumer as a button within the mobile banking app. For security, this technology “tokenizes” the user’s account information. “The merchant never saw the account number of the individual making the payment because they didn’t present the debit card, they presented the token to the merchant,” said Elizabeth McQuerry, partner at payments consulting and research firm Glenbrook Partners. I’m here.

With ULink, MX’s technology ensures that the customer has an available balance to cover the transaction, and the funds transfer takes place within seconds over the RTP network. There is no risk of merchants not receiving payments or customers overdrafting accounts. However, once a transaction occurs, you have fewer options to resort to in the event of a dispute. For example, if a consumer does not receive an item they ordered online, they will need to resolve a dispute with the seller or request a refund from their bank. The card network has extensive experience in dealing with fraudulent transactions and protects customers through, for example, Visa’s zero liability policy, which requires banks to cover cardholders in the event of fraudulent transactions.

A Visa spokesperson said, “We know Visa is and will continue to be the most cost-effective and secure payment method. We are providing it to the.

Merchants who want their customers to use bank payments will want to handle disputes as quickly as Amazon does.AMZN
We’ve built customer loyalty through our generous refund policy. Merchants eager to accept bank payments can encourage consumers to switch by offering rewards or discounts for using their services. and offers its own card program similar to bank payments.targettarget
For example, a red debit card works by transferring a customer’s funds directly from their bank account to Target. In exchange for using the product, Red Card customers receive up to 5% cashback on their purchases. In addition to avoiding exchange fees, Red Card gives Target more control over the customer experience and more access to offer new promotions and products.

Plaid, MX’s competitor and one of America’s most valuable private fintech companies, currently does not offer bank payment services and does not use the RTP network. When Visa announced plans to acquire Plaid for his $5.3 billion in 2020, the Justice Department said Visa would “remove this competitive threat to the online debit business before Plaid has a chance to succeed.” and blocked it. Visa denied the allegations, arguing that Plaid’s business was “complementary to Visa’s business and not competitive.” Mastercard has moved to bank payments 2016 By acquiring Vocalink, which provides services across the UK.

Sionic’s product isn’t the first time bank payments have tried to make headlines in the United States. In 2014, Merchant Customer Exchange, a payments company owned by a group of large retailers, including Walmart.WMT
, tried to launch a bank-paid product called CurrentC. The initiative was closed after two years due to its failure to attract consumer attention. Even if merchants are eager to drive card adoption, changing consumer payment habits is a time-consuming process. Especially when many merchants are accustomed to a fast and simple card experience.

Google has been working on payments tech for over a decade, so it’s unclear whether Google Cloud Services’ involvement in Sionic’s bank payments product portends the tech giant’s bigger plans. The product has been iterated several times. In May, Google Pay (an Apple Pay competitor) was rebranded to Google Wallet. The latest version is a digital wallet designed to store card information in addition to tickets and vaccination cards. The company last year abandoned plan We offer Google Pay users the option to sign up for checking accounts and debit cards through a program called Google Plex.

Given the history of Google Wallet, adding bank payments for the company wouldn’t be too much of a leap.

“The Sionic and MX announcements are likely to be warmly received by Google Wallet, which has abandoned its own efforts to offer direct bank payment options known as Google Cash and Google Plex,” said the CEO of payments firm Crone Consulting. said co-founder Richard. clone, said.

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