One of the big questions about the growing market for real-time payments is whether solutions that attach themselves to these payment methods will replace card transactions at the point of sale and online. The European Central Bank has fostered the idea that a rival to the U.S.-based card networks should be an objective for Single Euro Payments Area (SEPA), something that has yet to materialize in a significant way. There are a few solutions that have seen some success in digital channels, particularly in countries where direct checking account debits are a more common way to pay.
PaymentsSource considers this topic in an article titled Could FIS use open banking to pry merchants away from card networks? Here’s a brief excerpt:
Merchants finally have a range of alternatives to accepting payment cards in Europe, thanks to open banking initiatives. But switching to instant payments is no easy decision, even if it’s cheaper on paper.
Interchange rates — at least in Europe — have steadily declined in recent years under regulatory and legal pressure, so the cost of accepting cards is lower than it was years ago when merchants began their fight for alternatives. Card networks have also stepped up their technology game.
Merchants considering switching to the cheaper, account-to-account payments must weigh the benefits against the costs of upgrading existing technology and changing internal processes to support an open banking-driven payment method.
Among providers looking to bring instant payments to merchants, FIS says it’s hit on a solution bridging these dilemmas by combining its legacy bank services with the retail-centric perspective gained in its $35 billion merger last year with Worldpay.
Still moving rather cautiously in its relatively new role as a global fintech, FIS last month rolled out Worldpay Open Banking Hub, enabling consumers to make purchases directly from their bank accounts for participating merchants in the U.K.
As the article points out, there are a lot of “wins” for merchants. They get paid immediately, fees are likely lower than card payments—even in regulated interchange markets—and transactions are final, meaning there are no chargebacks. But what’s in it for consumers?
A network of acceptance locations hasn’t yet emerged so instant purchases are not available with consistency. No chargebacks means consumers don’t have a consistence structure to contest transactions, unless a merchant decides to develop their own practices. And rewards and benefits that are offered through many cards are not available with real-time direct debits unless a merchant decides to develop their own. With such lopsided benefits, I suspect that real-time consumer payments will not expand much beyond the current use of direct debit volumes in e-commerce.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group