For decades, retailers have protested the fees VisaV and MastercardMA charge them to accept credit and debit cards. “Pay by bank” is the latest effort to circumvent those fees by letting people pay directly from their bank accounts.
Financial services consulting firm Sionic has partnered with MX, a company that connects fintechs to users’ bank accounts, and Google Cloud Services to launch pay by bank in the United States. The product lets merchants cut out card acceptance fees, which range from 1% to 3%. Its success in the U.S. depends on whether merchants can incentivize consumers to switch from heavily utilized credit or debit cards.
Pay by bank lets consumers bypass Visa and Mastercard’s payment rails and pay directly from their bank account. It’s already popular abroad, particularly in Asia and Europe, but has so far failed to catch on in the U.S. market where 84% of adults have at least one credit card. While credit and debit cards approach ubiquity in the United States, the card networks are facing scrutiny as interchange fees–charges to merchants to cover the cost of processing transactions–have continued to climb. In 2021, merchants were charged $77.5 billion in credit card fees, which are split between issuing banks and the card networks. In March, Visa and Mastercard were preparing to raise interchange fees even further, the Wall Street Journal reported.
The pay-by-bank product uses the real-time-payments (RTP) network operated by The Clearing House, an organization owned by 23 of the largest banks including Citibank, Wells FargoWFC and HSBCHSBC, with lower fees than the card networks. The Clearing House’s real-time-payments network is also used by Venmo and Zelle to facilitate money transfers. Launched in 2017 in America, RTP aims to speed up bank transfers so they settle instantly – that’s a stark contrast to the days it can take to settle most bank transfers over the ACH network.
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