Early Warning Services' planned "bank wallet" could add little functionality beyond what consumers already get from Apple Pay or Venmo, but any adoption it gets could be the foundation of something bigger.
EWS hasn't disclosed full details, but the bank-owned firm said the wallet will solve many gaps in online shopping by providing a bank-based hub where consumers presumably would manage purchases, refunds and rewards for Visa and Mastercard transactions.
If EWS' wallet provides a compelling incentive for consumers to use it and a brand strategy that catches on like its
And the banks may have a much more ambitious strategy in mind with the bank wallet. EWS' wallet could potentially lay the groundwork for a bank-run payment system like those evolving in open-banking markets like Europe, said Sara Elinson, EY Americas' fintech and payments M&A leader.
"I don't want to underestimate the challenge of U.S. banks creating an account-to-account payment system based on faster-payment rails or ACH that could displace today's credit and debit cards," she said. "But I have confidence they'll be able to do it. The very fact that a large bank-owned wallet model is evolving suggests they're in a position to establish standards and move this forward."
Pay-by-bank systems are gradually taking hold in Europe, particularly for paying utilities and
One of the challenges of creating such systems in the U.S. would be matching the level of customer support that cards currently provide, Elinson said.
"In order for ACH or other payment rails to become as trusted and protected and revocable as a card transaction, you're going to start to lay on costs," she said. "Right now that 2.5% to 3% interchange cost is split between the issuer, the merchant acquirer, a gateway, the networks, and recreating all that with an ACH-based approach would be costly — merchants might still pay as much as 2%."
But merchants might be willing to support a bank-based account-to-account payments approach if they reaped more direct benefits by participating, such as by building loyalty, she suggested.
"That's been the appeal of buy now/pay later methods, where merchants are willing to pay much higher fees [of] up to 6% because they're playing a role in helping to close that deal and get that loyalty," Elinson said.
A spokesperson at EWS declined to provide further details about the wallet, expected to launch this spring.
The EWS wallet faces various challenges, because in addition to competing with entrenched third-party digital wallets like Apple Pay, Google Pay and PayPal, the banks' wallet will need to build merchant support, said Rod Reef, managing principal with Reef Karson Consulting.
"You have to wonder what's the value proposition for the merchant, and why should they add yet another way to pay with cards on their websites? Merchants already are looking for a way to get around interchange costs," Reef said.
Merchant groups last year proposed
Reef doesn't rule out the possibility that the banks' wallet could lead to development of other capabilities like account-to-account payments.
"Look at what Zelle has achieved in creating a huge, trusted system of enrolled consumers who are sending money to each other instantly, and keep in mind that Zelle has a deal with RTP so that increasingly more and more of its traffic is moving onto faster rails," Reef said.
The concept of giving bank customers one place to manage all card transactions, however, could have some appeal and close certain gaps consumers have now hopping between a bank app and digital wallets like Apple Pay and Google Pay and other online payment mechanisms like PayPal and Venmo, said Marco Salazar, director of payments at Javelin Strategy & Research.
"The problem is that consumer behavior is very hard to change. At this point Apple Pay and Google Pay are deeply entrenched, and it seems like banks should be thinking of partnerships and building on what's already there," Salazar said.
If the bank wallet's primary end goal is simply to persuade consumers to use it as a hub for card payments, it will have a much harder time achieving adoption without strong incentives, according to Elinson.
"I can already shop almost anywhere with Apple Pay or Google Pay by doing almost nothing — clicking online or just bringing my phone near the terminal — so asking me to use a different wallet from my bank seems like it would just add a step," Elinson said.
