Using the same tech as Zelle and Venmo, the new payment service eliminates Visa and MasterCard fees

For decades, retailers have opposed the payment visa
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and Mastercard
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Charge them to accept credit and debit cards. “Pay by Bank” is the latest effort to avoid those fees by letting people pay directly from their bank accounts.

Financial services consulting firm Cionic has partnered with MX, a company that connects fintech to consumers’ bank accounts, and Google Cloud Services for bank payments in the United States. The product allows merchants to cut card acceptance fees from 1% to 3%. Success in the US depends on whether merchants can encourage consumers to switch from widely used credit or debit cards.

With BankPay, it allows consumers to bypass Visa and MasterCard payment barriers and pay directly from their bank account. It’s already popular overseas, particularly in Asia and Europe, but has yet to catch on in the U.S. market, where 84 percent of adults hold at least one credit card. As credit and debit cards become more ubiquitous in the United States, card networks are facing scrutiny as interchange fees — payments to merchants to cover the cost of processing transactions — continue to rise. In the year By 2021, merchants are expected to pay $77.5 billion in credit card payments, split between issuing banks and card networks. In March, Visa and MasterCard were preparing to further increase interchange fees, the Wall Street Journal reported.

The Bank Payments product uses the Real Time Payments (RTP) network operated by The Clearing House, which is owned by Citibank Wells Fargo’s 23 largest banks.
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and HSBC
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, lower fees than card networks. Clearinghouse’s real-time payment network is used by Venmo and Zelem to facilitate money transfers. In the year Launched in the US in 2017, RTP aims to speed up bank transfers and settle them quickly – in stark contrast to the days it takes to settle most bank transfers on the ACH network.

“We’re shifting control of that merchant-customer relationship from those expensive rewards credit cards into the hands of merchants,” said Ron Herman, CEO and founder of Cionic.

Customers use ULink, Sionic’s payment-banking option, by scanning a QR code at checkout. The option can be displayed as a button for users in the mobile banking app. For security purposes, the technology “encrypts” user identification information. “The merchant never sees the account number of the person paying because they don’t provide a debit card, they provide a token to the merchant,” says Elizabeth McCurry, payment consultant and research partner at Glenbrook Partners.

With ULink, MX technology ensures that the customer has enough balance to cover the transaction, and the money transfer happens within seconds over the RTP network. There is no risk that merchants will not receive payment or that the customer may overdraw their account. However, once the transaction is completed, there are few options for recovery if disputes arise. For example, if a consumer orders something online and it never arrives, they need to resolve the dispute with the merchant or ask their bank for a refund. Card networks have experience controlling fraud and protect customers with things like Visa’s zero liability policy, which requires banks to cover cardholders in the event of fraudulent transactions.

“We know Visa is one of the most cost-effective and secure ways to pay and make payments – offering superior functionality and benefits to merchants and consumers at competitive prices,” said a Visa spokesperson.

Merchants who want customers to use bank payments want to handle disputes quickly, similar to Amazon
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Generous refund policies have built customer loyalty. Merchants eager to accept bank payments can encourage consumers to switch by offering rewards or discounts for using the service. Some merchants are ahead of the curve by offering card programs similar to paying with a bank. The target
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For example, the Red Debit Card works by transferring customers’ money directly from their bank account to Target. To use the product, Red Card customers receive up to 5% cash back on their purchases. In addition to eliminating interchange fees, the Red Card gives Target more control over the customer experience and more opportunity to offer new promotions or products.

Plaid, a competitor of MX and one of the most valuable private fintech companies in the US, does not currently offer bank-to-pay services or use the RTP network. In the year In 2020, when Visa announced plans to acquire Plaid for $5.3 billion, the Justice Department blocked it, saying Visa was “trying to eliminate competitive threats to its online debit business before Plaid has a chance to succeed.” Visa has denied the allegations, saying Plaid’s business is “compatible with Visa, not competitive.” Mastercard was bankrolled in 2016 by acquiring Vocalink, which provides its services across the UK.

This isn’t the first time a Psionic product has tried to gain traction in the United States through bank payments. In the year In 2014, Merchant Customer Exchange, a payments company owned by a group of big-box retailers including Walmart
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, attempted to launch a bank-to-pay product called CurrentC. The initiative was closed after two years due to lack of consumer acceptance. While merchants are eager to drive adoption, changing consumers’ payment habits is a slow process, especially as many become accustomed to the quick and easy card experience.

It’s unclear if Google Cloud Services’ involvement in the Cionic Payments banking product is indicative of the technology’s grand plans, given that Google has been working on payments technology for more than a decade. His products have been moved in several iterations. In May, Google Pay (a competitor to Apple Pay) changed to Google Wallet. The most recent version is a digital wallet designed to store card information in addition to tickets or vaccination cards. Last year, the company planned to let Google Pay users sign up for checking accounts and debit cards through a program called Google Plex.

Given Google Pocket’s history, the company won’t be too far off from adding bank charges.

“The announcement of Cionic and MX will be warmly welcomed by Google Wallet, which continues its efforts to provide a direct payment option to Google Cache and Google Plex,” said Richard Crone, CEO and founder of payments firm Crone Consulting.