How Visa and Mastercard are bolstering non-card payments

Daniel Acker/Bloomberg

Account-to-account payments are a double-edged sword for Visa and Mastercard. The product could easily cut into card volume, but if they play their hand right, it could also provide the networks with a way to lock in client relationships. 

In one example, Visa and Dwolla teamed up to incorporate the card network's open banking capabilities and account verification service with Dwolla's account-to-account product. That enables verification of account ownership and an ability to review balances in real-time. The collaboration uses open banking to help connect parties in a payment. 

A2A payments, or "pay by bank" transactions, don't require credit or debit cards. The option has gotten more attention over the past two years — particularly as  pressure on card fees and concerns over mounting credit card debt have bolstered both installment lending and A2A  options. 

Payment technology companies are flocking to A2A payments. Fiserv, for example, recently added Sunoco and Walmart as clients for a product that enables immediate settlement for A2A transactions. Payment-technology firm Link Money is also selling same-day settlement for A2A payments, focusing on businesses that offer parking, storage, tickets and other recurring payments. 

The card networks have responded by partnering with A2A lenders and merchants to use their own processing capabilities and ties to large banks to support direct account transfers. 

Mastercard makes its move

Mastercard contends that the trend toward real-time processing opens an opportunity to grow its share of these transactions. 

Mastercard recently combined its domestic and cross-border money-movement products into a single portfolio called Mastercard Move to improve remittance and disbursement services between bank accounts. Move includes more than 180 countries and 95% of the world's banked population. Recent Mastercard partners include Alipay in China, Access Bank Group in Africa and VoPay in Canada. 

Payments

How 'Pay by Bank' could affect U.S. card volume

August 14, 2023 10:53 AM

"Instead of looking at it as a world where we are fighting the 'card corner' from A2A encroachment, the trend to A2A payments puts us in a position to serve different use cases and not have to take sides," said Alan Marquard, head of transfer solutions for Mastercard. 

Since a majority of non-cash payments are still made with credit or debit cards, that option is still a major strategy for Mastercard with the mix of cards or non-card electronic payments based on the needs of a market, consumer or business, Marquard said.

"There is a huge opportunity with a global scale for payments that have nothing to do with cards reaching endpoints," Marquard said. 

Visa and Mastercard both have strategies to become less reliant on interchange revenue. By adding services and enabling A2A payments, the two companies may earn less revenue per transaction than they do from a point-of-sale payment, but can benefit from offering a larger menu of services to their clients. 

"It's a distribution plan for the card networks," said Christopher Miller, lead analyst for emerging payments at Javelin Strategy & Research. "The interesting thing about the card networks is they increasingly don't see themselves as credit card networks but more as 'general' networks. They make lots of money processing card transactions, but they can also make a lot of money selling other parts of their stack."

Visa's dealings with Dwolla

Dwolla, which partners with card networks, has nonetheless positioned itself as a card alternative. It entered into a 2021 partnership with Infnicept, a company that sells merchant onboarding technology to wring processing costs out of payments. 

Dwolla's more recent deal with Visa uses the card network less as a payment processor and more as a service provider, giving Dwolla access to technology that can simplify connections between multiple payers, payees and banks. 

"Traditionally, it has been cumbersome for businesses to pay other businesses directly through  banks," said Skyler Nesheim, chief technology officer at Dwolla, noting that identity vetting, attaching a bank account or entering an account number and routing number often require a micro-deposit to prove ownership of that account. 

Open banking removes a lot of those steps by enabling a permission-based direct connection between accounts, Nesheim said. 

"There are also other benefits such as a reduced chance for payment errors and an easier way for the businesses to monitor cash positions," Nesheim said. 

Dwolla introduced open banking tools earlier this year, with the goal of making its account-to-account payments option more attractive to mid to enterprise-sized businesses that use Dwolla's application programming interface. 

The API is used to support transfers to supply-chain finance, procurement, business payments and B2C transfers. The company contends that businesses require more complex processing than consumer payments, including multiple vendors and technical integrations. Dwolla's open banking technology, along with its Visa partnership, follows Dwolla's 2023 launch of Connect, an A2A payment service. 

The Visa/Dwolla partnership is aimed at reducing the number of payment technology companies that businesses need to work with, Nesheim said. 

"As we expand our open banking services in the U.S., we want to partner with companies who are aligned with our mission to build data-driven financial services and expand the digitization of payments, especially in high ACH segments," said Haley Nusbaum, head of U.S. Visa Open Banking Solutions, in an email. 

The card brands' size and existing relationships provide a potential advantage against other firms that are competing to enable A2A payments, Miller said. 

"A2A can help the card networks. If you can partner with Visa, for example, why would you look elsewhere?" Miller said.