Finance

Visa to launch pay-by-bank payments, an alternative to credit cards

Published

3 months ago

September 5, 2024

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Visa said it plans to launch a dedicated service for bank transfers, skipping credit cards and the traditional direct debit process.

Visa, which alongside Mastercard is one of the world’s largest card networks, said Thursday it plans to launch a dedicated service for account-to-account (A2A) payments in Europe next year.

Users will be able set up direct debits — transactions that take funds directly from your bank account — on merchants’ e-commerce stores with just a few clicks.

Visa said consumers will be able to monitor these payments more easily and raise any issues by clicking a button in their banking app, giving them a similar level of protection to when they use their cards.

The service should help people deal with problems like unauthorized auto-renewals of subscriptions, by making it easier for people to reverse direct debit transactions and get their money back, Visa said. It won’t initially apply its A2A service to things like TV streaming services, gym memberships and food boxes, Visa added, but this is planned for the future.

The product will initially launch in the U.K. in early 2025, with subsequent releases in the Nordic region and elsewhere in Europe later in 2025.

Direct debit headaches

The problem currently is that when a consumer sets up a payment for things like utility bills or childcare, they need to fill in a direct debit form.

But this offers consumers little control, as they have to share their bank details and personal information, which isn’t secure, and have limited control over the payment amount.

The open banking movement is inspiring consumers to ask who owns their banking data

Static direct debits, for example, require advance notice of any changes to the amount taken, meaning you have to either cancel the direct debit and set up a new one or carry out a one-off transfer.

With Visa A2A, consumers will be able to set up variable recurring payments (VRP), a new type of payment that allows people to make and manage recurring payments of varying amounts.

“We want to bring pay-by-bank methods into the 21st century and give consumers choice, peace of mind and a digital experience they know and love,” Mandy Lamb, Visa’s managing director for the U.K. and Ireland, said in a statement Thursday.

“That’s why we are collaborating with UK banks and open banking players, bringing our technology and years of experience in the payments card market to create an open system for A2A payments to thrive.”

Visa’s A2A product relies on a technology called open banking, which requires lenders to provide third-party fintechs with access to consumer banking data.

Open banking has gained popularity over the years, especially in Europe, thanks to regulatory reforms to the banking system.

The technology has enabled new payment services that can link directly to consumers’ bank accounts and authorize payments on their behalf — provided they’ve got permission.

In 2021, Visa acquired Tink, an open banking service, for 1.8 billion euros ($2 billion). The deal came on the heels of an abandoned bid from Visa to buy competing open banking firm Plaid.

Visa’s buyout of Tink was viewed as a way for it to get ahead of the threat from emerging fintechs building products that allow consumers — and merchants — to avoid paying its card transaction fees.

Merchants have long bemoaned Visa and Mastercard’s credit and debit card fees, accusing the companies of inflating so-called interchange fees and barring them from directing people to cheaper alternatives.

In March, the two companies reached a historic $30 billion settlement to reduce their interchange fees — which are taken out of a merchant’s bank account when a shopper uses their card to pay for something.

Visa didn’t share details on how it would monetize its A2A service. By giving merchants the option to bypass cards for payments, there’s a risk that Visa could potentially cannibalize its own card business.

For its part, Visa told CNBC it is and always has been focused on enabling the best ways for people to pay and get paid, whether that’s through a card or non-card transaction.

Finance

U.S. ‘industrial renaissance’ is driving a rebound in fundraising

Published

8 hours ago

November 20, 2024

Business Finance News

Jonathan Gray, president and chief operating officer of Blackstone Inc., from left, Ron O’Hanley, chief executive officer of State Street Corp., Ted Pick, chief executive officer of Morgan Stanley, Marc Rowan, chief executive officer of Apollo Global Management LLC, and David Solomon, chief executive officer of Goldman Sachs Group Inc., during the Global Financial Leaders’ Investment Summit in Hong Kong, China, on Tuesday, Nov. 19, 2024.

Bloomberg | Bloomberg | Getty Images

An “industrial renaissance” in the U.S. is fueling demand for capital, Marc Rowan, CEO of Apollo Global Management said at the Global Financial Leaders’ Investment Summit in Hong Kong.

“There is so much demand for capital, [including through debt and equity] … What’s going on is nothing short of extraordinary,” Rowan said on Tuesday during a panel discussion.

This demand has been supported by massive government spending, particularly on infrastructure, the semiconductor industry and projects under the Inflation Reduction Act, said the asset manager, who is reportedly in the running for Treasury Secretary position under President-elect Donald Trump.

“What we’re watching is this incredible demand for capital happening against a backdrop of a U.S. government that is running significant deficits. And so the capital raising business, I think that’s going to be a good business,” he said.

Industrial policies, including the CHIPS and Science Act and the 2021 infrastructure legislation, warrant billions in spending.

Rowan added that the U.S. has been the largest recipient of foreign direct investment over the past three years and is expected to stay at the top spot this year as well.

Rowan and other panelists also identified energy and data centers — needed for artificial intelligence and digitization — as growth sectors requiring more capital.

Blackstone President and COO Jonathan Gray told the panel that data centers were the biggest theme across his entire firm, with the company employing billions on their development.

“We’re doing it in equity, we’re doing it financing … this is a space we like a lot, and we will continue to be all in as it relates to digital infrastructure.”

Fundraising and M&A recovery

Other panelists at the summit organized by the Hong Kong Monetary Authority said that capital raising was well-positioned to recover from a recent slowdown.

According to David Solomon, Chairman and CEO of Goldman Sachs, capital raising activity had reached peak levels in 2020 and 2021 amid massive Covid-era stimulus but later became muted amid the war in Ukraine, inflation pressures and tighter regulation from the Federal Trade Commission.

There has been a recent pick up in activity as conditions have normalized, along with expectations of friendlier regulation on dealmaking from the FTC under the incoming Donald Trump administration, Solomon said.

While there remains an inflationary backdrop and other risks in the current environment, Ted Pick, CEO of Morgan Stanley said that the consumer and corporate community are “by in large, in good shape” as the economy continues to grow.

“This environment has been one where, if you are in the business of allocating capital, it’s been great,” he said, adding that the group was now gearing up to get into “raising capital mode.”

“That is [the] hallmark of a growing and thriving economy, which is where the classic underwriting and mergers and acquisitions businesses take hold,” he said.

Solomon predicted that these trends would see “more robust” capital raising and M&A activity in 2025.

Finance

Visa & Mastercard execs grilled by senators on high swipe fees

Published

15 hours ago

November 19, 2024

Business Finance News

The Senate Judiciary Committee convened on Tuesday for a hearing on the alleged Visa–Mastercard “duopoly,” which committee members from both sides of the aisle say has left retailers and other small businesses with no ability to negotiate interchange fees on credit card transactions.

“This is an odd grouping. The most conservative and the most liberal members happen to agree that we have to do something about this situation,” committee chair and Democratic Illinois Sen. Dick Durbin said.

Interchange fees, also known as swipe fees, are paid from a merchant’s bank account to the cardholder’s bank, whenever a customer uses a credit card in a retail purchase. Visa and Mastercard have a combined market cap of more than $1 trillion, and control 80% of the market.

“In 2023 alone, Visa and Mastercard charged merchants more than $100 billion in credit card fees, mostly in the form of interchange fees,” Durbin told the committee.

Durbin, along with Republican Kansas Sen. Roger Marshall, have co-sponsored the bipartisan Credit Card Competition Act, which takes aim at Visa and Mastercard’s market dominance by requiring banks with more than $100 billion in assets to offer at least one other payment network on their cards, besides Visa and Mastercard.

“This way, small businesses would finally have a real choice: they can route credit card transactions on the Visa or Mastercard network and continue to pay interchange fees that often rank as their second or biggest expense, or they could select a lower cost alternative,” Durbin told the committee.

Visa and Mastercard, however, stand by their swipe fees.

“We consider them incentives, some people might consider them penalties. But if you can adopt new technology that reduces the risk and takes fraud out of the system and improves streamlined processing, then you would qualify for lower interchange rates,” said Bill Sheedy, senior advisor to Visa CEO Ryan McInerney. “It’s very expensive to issue a product and to provide payment guarantee and online customer service, zero liability. All of those things, and many more, senator, get factored into interchange [fees].”

The executives also warned against the Credit Card Competition Act, with Sheedy claiming that it “would remove consumer control over their own payment decisions, reduce competition, impose technology sharing mandates and pick winners and losers by favoring certain competitors over others.”

“Why do we know this? Because we’ve seen it before,” Mastercard President of Americas Linda Kirkpatrick said, in reference to the Durbin amendment to the 2010 Dodd-Frank Act, which required the Fed to limit fees on retailers for transactions using debit cards. “Since debit regulation took hold, debit rewards were eliminated, fees went up, access to capital diminished, and competition was stifled.”

But the current high credit card swipe fees for retailers translate to higher prices for consumers, the National Retail Federation told the committee in a letter ahead of the hearing. The Credit Card Competition Act, the retail industry’s largest trade association wrote, will deliver “fairness and transparency to the payment system and relief to American business and consumers.”

“When we think of consumer spending, credit card swipe fees are not the first thing that comes to mind, yet those fees are a surprisingly large part of consumer spending,” Notre Dame University law professor Roger Alford said. “Last year, the average American spent $1,100 in swipe fees, more than they spent on pets, coffee or alcohol.”

Visa and Mastercard agreed to a $30 billion settlement in March meant to reduce their swipe fees by four basis points for three years, but a federal judge rejected the settlement in June, saying they could afford to pay more.

Visa is also battling a Justice Department lawsuit filed in September. The payment network is accused of maintaining an illegal monopoly over debit card payment networks, which has affected “the price of nearly everything,” according to Attorney General Merrick Garland.