Card network giant Visa plans to improve pay-by-bank services for consumers in the United Kingdom next year as it continues to develop card payment alternatives in the face of increased competition.

The San Francisco-based company aims to launch a new account-to-account payment service, called “Visa A2A,” in the U.K. that will allow consumers to make recurring payments via money transfers from their banks, Visa said in a Thursday press release.  

It billed its new digital service as providing a “significant upgrade” on existing offerings in the market because of better security and dispute resolution features, including those that use tokenization, biometrics and artificial intelligence to fight fraud.

“The payment of bills and subscriptions through bank transfers remains largely unchanged since the inception of direct debit 60 years ago,” Visa said in the release. “Visa A2A will ensure consumer-to-business bank transfer payments have similar levels of protection that consumers are used to when they use their cards,” Mandy Lamb, managing director for Visa U.K. and Ireland, said in the release.

Visa has been developing pay-by-bank services ever since it completed the acquisition of the Swedish company Tink in March 2022, with the network slowly rolling out features in Europe and elsewhere.

Pay-by-bank options have multiplied in recent years as financial technology companies have developed new money transfer channels in the age of open banking. The advance of real-time payments, including the launch last year of FedNow in the U.S., has also egged on the acceptance of pay-by-bank methods. Plus, merchant demand for such alternatives is spooling up.

Visa, the biggest U.S. card network, is pursuing the card alternative as fintech rivals target its traditional business for disruption. Startups like Chicago-based Aeropay and San Francisco-based Plaid have increasingly sought to create pay-by-bank systems that bypass cards.

Visa teamed with a pack of U.K. fintechs to advance its pay-by-bank offering. It cited working with Banked, Modulr, Moneyhub and Salt Edge, among others.

The enhanced Visa service isn’t directed just at consumers; it’s designed to benefit Visa’s bank and business clients, allowing them to collect recurring payments from consumers.

The Visa A2A service will give cardholders in the U.K. the ability to make ongoing payments for expenses like utility bills and rent without pulling out their plastic. The company also envisions eventually adding features that let consumers manage the payment of subscriptions too, for everything from gym memberships to streaming services, the release said.

“It will be easier to set up and manage payment permissions so consumers will be in control over when payments are made, and will be able to set limit amounts, so higher bills will not put them unexpectedly under financial stress,” the release said.

Visa charges interchange fees that range from 1.4% to 2.5% of a credit card transaction, and are about .05% of a debit card transaction, according to a Forbes report in June.

A Visa spokesperson did not respond to questions about fees related to the new service and how they might compare with those interchange fees earned with card use. 

In the U.S., credit cards are a popular way to pay recurring bills, according to a 2021 survey from the payments processor Fiserv, which found 84% of U.S. consumers like to pay bills that way.

Visa is also angling to bring its pay-by-bank services to the U.S., the company’s chief product and strategy officer, Jack Forestell, told investors at a May conference this year.

Visa’s move in the U.K. follows the evolution of U.K. financial services in the age of open banking, which allows for the sharing of financial information (such as the particulars of your checking account) between banks and third parties. Open banking policies have advanced in Europe at a faster clip than in the U.S., where regulators just this year made a step in that direction.

The Consumer Financial Protection Bureau said in June that it was beginning the process of adopting U.S. open banking standards. The concept has caught on as a swarm of third-party fintechs simplify moving data between bank accounts, often via apps. The proposed rules, relying on the CFPB’s authority under section 1033 of the Consumer Financial Protection Act, will turn on developing industry standards for handling the data.

Visa’s chief rival Mastercard has also embraced open banking alternatives. In March, Mastercard announced the launch of a product called “open banking for account opening,” which lets Mastercard customers open accounts at certain banks and check the balances on those accounts for free.

Fraud remains a concern, but Visa said it will employ a number of security measures to spot fraudulent transactions. “A formal dispute resolution process will provide consumers with a reliable way to check transactions, whilst innovations such as biometrics will add a new level of security resulting in fewer unauthorized transactions,” the release said.

Some of Visa’s bank partners, including HSBC and Barclays, backed its latest pay-by-bank move. 

“We welcome an initiative that seeks to standardise the rules, capabilities and protections for customers using account-to-account payments,” HSBC’s head of everyday banking, Pella Frost, said in the release. “Visa is well placed to build on the growth we are seeing, and we look forward to seeing how it will work with the industry to create a secure and sustainable payment experience for the ecosystem.”

By Patrick Cooley , Lynne Marek on Sep 6, 2024
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