Payments News Digest 18 February 2022

US/UK: Pay-by-bank moves on both sides of the Atlantic

Discover Financial Services is planning to introduce a pay-by-bank option called BuyPass that will allow participating merchants in the United States to provide a cardless option in their apps and websites. As the term "pay by bank" suggests, the fund transfers involved occur over the ACH network rather than the traditional payment-card rails.

The development comes through a partnership with Atlanta-headquartered BIM (Buy It Mobility Networks). In its promotional material, BIM highlights the possibility of lower processing costs for merchants, as well as the provision of a new source of data on customer behaviour and opportunities for narrowly targeted brand engagement. Powered by the new breed of digital solutions, Nacha's Automated Clearing House network has been enjoying healthy growth in volumes over recent years as volumes involving direct deposit, bill settlement and P2P transfers all increase and Americans turn away from cheques.

Pay-by-bank options have been present now for several years in Britain, though the method has yet to deliver on its early, market-transforming promise. This week, in partnership with Open Banking fintech Banked, Bank of America has introduced a pay-by-bank solution for its e-commerce customers in the UK. Where implemented, customers will be able to send funds from their current accounts by clicking on the appropriate logo or scanning a QR code. BofA has revealed that it will be rolling out the API-leveraging method to more markets, but no timeline has been announced.

As a pioneer of Open Banking, the United Kingdom is a perfect market in which to inaugurate a multinational strategy of this kind. One widely available example of the method is Mastercard's Pay by Bank app: with a NatWest extension last August, the user base of this app reached close to half of mobile banking users in the country. Pay-by-bank methods are of particular interest to merchants, who value both the data opportunities and lower fees; however, card-issuing banks are more incentivised to stick with the status quo, as interchange, even where capped, has proven a profitable and resilient revenue stream.

EU: Instant payments push promised for a sluggish P2P market

The European Union is preparing legislation on instant payments across the 27-country bloc that will be presented to the body's parliament in the second half of the year: at issue is the slow rollout of instant payments for its 448 million inhabitants, thanks to a patchwork of national rules and incumbent inertia. The drive comes as politicians in the region seek to displace the dominance of the global cards networks. First on the agenda is the creation of a P2P service capable of mass acceptance – but it seems legal measures will be required to successfully push the infrastructure out into the marketplace.

At the same time, the nascent European Payments Initiative (EPI), the latest bid to create a European payments champion capable of competing with both the traditional cards networks and newer fintechs such as the Pay apps and PayPal, has been slowly assembling resources, though exactly who will fund the EPI remains open to question: shareholders (eg, BBVA, BNP Paribas, Deutsche, Santander, UniCredit, Nets, Worldline and Société Générale) need public backing to help shoulder the costs, perhaps with an eye on the ECB's dawning responsibility in the age of digital currencies to deliver a Digital Euro.

As noted in Argus Advisory Research's most recent report on merchant acquiring in Western Europe, Brussels has long nursed a "desire to create a European payments scheme to compete with Visa and Mastercard, with the idea of running such a scheme on instant payment rails rather than card rails under discussion. Given the European Union's desire to lower payments costs, this could squeeze margins further for acquirers and processors".

UK/Australia: Curtains set to close on Act I of BNPL drama

The Buy now, pay later industry in Britain took a knock this week with news that the Financial Conduct Authority has prompted several leading lenders to voluntarily refund particular late-payment charges. In addition, Clearpay, Klarna, Laybuy and Openpay have agreed to rewrite certain terms and conditions for clarity and fairness. Meanwhile, in the format's most active market of Australia, the industry is set for a consolidation wave: last month a pair of prominent players revealed that they were in discussions about a merger, with Zip shaping up to absorb smaller local rival Sezzle. Latitude has gone further, making an offer worth 335 million Australian dollars ($240m) for Humm's consumer lending operations.

The greenfield phase of digital instalment lending is now drawing to a close as interest-rate setters worldwide prepare for upward revisions, a particularly consequential development in a thin-margin, high-volume business such as that pursued by Klarna and its competitors. More realism has also set in, as regulators and public representatives pour cold water on early-stage enthusiasm – and consumers, the young particularly, feel the pressure of constrained cash flow after sprees that went unchecked because of lender myopia around their creditworthiness.

Other stories of interest this week...

Global: Visa and Amazon reach deal over payment fees
Global: FSB calls for urgent action to contain crypto risks
Mexico: Coinbase launches remittances programme
US: Spending withstands Omicron, inflation say networks

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