E-commerce drives digital payment advances

Visa is pitching account-to-account payment services as it seeks to capture business in payment flows beyond its card network sweet spot.

The biggest U.S. card network remains ready to offer A2A services in the United Kingdom this year, before rolling it out in other parts of Europe and elsewhere, Visa CEO Ryan McInerney said during the company’s fiscal first quarter earnings webcast Friday. The company talked about the U.K. plans last September too.

“We still are on track to launch Visa A2A in early 2025,” McInerney said. “After we announced it, we've done what we always do, which is have a bunch of great conversations with clients and partners and regulators in the U.K.”

Initially, the A2A offering will be focused on bill-pay services for merchants and consumers, the CEO said, noting that the company has spotted demand for the types of rules and processes that Visa has in payments.

“Bill-pay in the U.K. is just the start, but we think that the power of taking some of these Visa capabilities into the account-to-account space is going to be a great benefit for our clients and our partners in the ecosystem,” he contended.

The move by Visa is noteworthy because the card behemoth has increasingly leaned into developing other types of payments services as the card market in the U.S. and elsewhere matures. Some parts of the world have already moved away from cards in favor of digital alternatives and U.S. consumers are also increasingly using such tools that don’t rely on card payment rails.

The service is also known as ‘pay-by-bank’ services because the payment skips cards and moves between bank accounts. The option is popular with merchants who are seeking ways to avoid card interchange fees.

A Visa executive said last May that the network is preparing to offer pay-by-bank services in the U.S. following its extension of such services in Europe, with an assist from its 2022 European acquisition of the open banking firm Tink, which enables banks, merchants and fintechs to move money. Visa is piloting such services with U.S. customers, Visa Chief Product and Strategy Officer Jack Forestell said at an investor conference at that time.

Nonetheless, Visa also faces plenty of competition in the A2A realm as other payments players expand into that market. For instance, Early Warning Services Zelle service and Chicago-based startup Aeropay also provide account-to account services.

Visa’s fiscal first-quarter net income increased 5% over the year-ago quarter to $5.1 billion, as revenue rose 10% to $9.5 billion, according to the report.

In the report, for the period ended on Dec. 31, the company also said the constant dollar value of payments volumes rose 9% over the year-ago period, with credit volume climbing 6% and debit volume increasing 9%.

When an analyst asked about the benefit of another type of payments, cryptocurrency, Visa Chief Financial Officer Chris Suh downplayed the importance of that alternative. “There are a few ways that crypto can show up in our underlying drivers, but typically when we see an impact, we do see it in our cross border e-commerce volumes,” Suh said. “Given the recent demand and activity around crypto, it is a modest benefit, I would say, to our cross-border e-commerce [volume], but it's one of the smaller benefits.”

The crypto arena also includes stablecoins, and Visa has provided some services to support the use of those digital assets tied to a fixed currency. Analysts at the investment firm William Blair said they expect use of stablecoins to offer Visa another non-card opportunity in the market.

“Whereas some have argued that crypto, generally, and stablecoins in particular pose a risk to the network model, we disagree,” the William Blair analysts said in a Friday note to clients. “Whereas stablecoins will likely be used more widely to fund cross-border remittances and certain B2B transactions, we do not see them disintermediating the networks’ ubiquitous, safe, and affordable rails.”

As far as the year ahead generally, Suh noted Visa is entering a number of negotiations with respect to clients renewing contracts. “This was going to be a big year for renewals, with more than 20% of our payment volume impacted and starting really meaningfully with that renewal cycle in the first half of the year,” Suh said.

And McInerney explained that the company and its sales force has been taking a different approach to those talks in recent years, leaning into selling a broader array of services.

“The types of conversations that we're having with our clients are much more multifaceted,” McInerney said. The teams are “building on deep relationships, historically in consumer payments, and taking the opportunity of these renewals to really expand our partnerships, especially into new flows opportunities, into [value-added services] opportunities, deepening our relationships with those partners and creating new revenue growth.”

Dive Brief:

• TransferMate, an Irish business-to-business payments company, said it’s now a payment service provider for retailer juggernaut Amazon, according to a Wednesday press release.
• As part of the partnership, Amazon sellers can use TransferMate to receive their sales disbursements in their preferred currency, per the press release.
• With TransferMate’s services, Amazon merchants will save money on foreign exchange fees by allowing them to transfer funds from their customers’ currencies to their seller currencies, according to TransferMate’s page on Amazon.

Dive Insight:

Since its founding in 2010, TransferMate has added major clients to its roster, including Wells Fargo, Intuit Quickbooks and Barclays, according to its website. The company raised $70 million in May 2022 in an investment round that it said valued the company at $1 billion.

Integrating TransferMate’s payment capabilities is aimed at advancing the e-commerce giant’s efforts to make it easier for merchants to detect fraud and abuse, the company said.

“We’re expanding the ability of Amazon sellers to collect payments across the world in a smart, secure way,” Sinead Fitzmaurice, CEO of TransferMate, said in a statement. “Our virtual accounts will allow Amazon sellers to scale globally into new countries and territories.”  

TransferMate’s U.S. and U.K. clients have turned to the company’s foreign exchange services to assist their clients with international customers managing their cross-border payments. Wells Fargo account holders, for example, can use TransferMate to accept payments from other currencies using the bank’s Global Invoice Connect service, according to its website. Similarly, Barclays partnered with the company in 2023 to enable its businesses transacting in Great British pounds to accept other currencies from their customers abroad.

TransferMate’s efforts to expand globally were bolstered by the 2022 funding round, with the U.K. pension fund Railpen participating, according to a TransferMate press release. The funding enabled the company to hire more employees internationally and develop its technology and product suite, the release said. 

Besides integrating more payment tools for its sellers, Amazon has also introduced more payment options for its customers. In 2023, the e-commerce company extended its buy now, pay later service beyond its app and website and onto other retailers’ websites. The following year, the company integrated PayPal into its Buy with Prime payment tool, allowing shoppers to pay for their Amazon purchases with their PayPal accounts.

Elon Musk’s social media company X, formerly known as Twitter, has teamed with card network giant Visa in its quest to launch a digital payments tool, according to a post on the site by its CEO.

In her post on X Tuesday, the company’s chief executive, Linda Yaccarino called the X Money account an “everything app” that will launch later this year. The digital wallet will provide for instant funding to an X digital wallet via the card network’s cross-border payments rail called Visa Direct as well as peer-to-peer payments using a debit card, she said.

It’s the “first of many big announcements about X Money this year,” Yaccarino said in the post.

Musk, a billionaire who has become a confidante and adviser to President Donald Trump, has been on a quest to develop X’s payment tool since purchasing Twitter in 2022 and renaming it X. As part of that campaign, X has been collecting money transmitter licenses, state by state, to build X’s own nationwide network.

In a separate post Tuesday on X, Visa acknowledged the new alliance. “Visa Direct will make it possible for US X Money Account users to fund and transfer money in real-time with their debit card,” the post from Visa said in response to Yaccarino’s post. When asked for comment, a spokesperson for Visa referred to the company’s post.

Musk appointed Yaccarino, a former NBCUniversal executive, to lead Twitter in May 2023. Around the same time, X began accumulating state money transfer licenses under the name Twitter Payments, beginning with Arizona, Michigan, Missouri and New Hampshire. The platform now about 40 state licenses, according to the Nationwide Multistate Licensing System (NMLS). 

Musk has experience in the payments industry as a co-founder of the online bank X.com in 1999 before it merged with another business to become PayPal.

Musk efforts to create the X wallet

He was making plans for the X payments feature even before the Twitter deal closed. In 2022, he said he could create a payments business that would contribute $1.3 billion to the company within six years, according to an October 2022 report from The New York Times. The owner of SpaceX and the largest shareholder of electric car-maker Tesla also told Twitter’s staff that he had plans to “populate a balance for every verified Twitter user,” according to a November 2022 report from media outlet The Verge.

“Give them some amount of money, like ten bucks or something, that they can send anywhere in the system,” he said, according to a transcript posted by the Verge. “We need money transfer licenses for that, which we’ve applied for.”

Musk’s businesses stand to benefit from his connections to the White House. He became a significant donor to Trump, delivering as much as a quarter of a billion dollars to the then candidate’s campaign and related political action committees last year.

Now, Musk is heading up an advisory group that will make recommendations to the Trump administration for federal government cost cuts and government efficiency moves.

Why it’s good for Visa

Meanwhile, Visa has been aiming to offer more services, beyond its card services sweet spot, and specifically to strengthen its Visa Direct offering for moving money through bank accounts. In a press release last month, it touted its ability to use that rail to let users transfer funds in less than a minute by way of a debit card.

Visa Direct has also been the means by which the card network is seeking to become a bigger player in the international remittances arena, letting people send money to family and friends in other countries.

It may be handy for Visa to have a new connection to the White House. It has been trying to fend off increased scrutiny from the federal government as well as some congressional members over the past several years. 

Last September, the Justice Department sued Visa in a civil antitrust lawsuit over its debit card practices in federal court. The department alleged the card network’s anticompetitive activities in the debit card market stifled competition from companies pitching newer digital payment tools. Prosecutors argued that those Visa debit card moves also injured U.S. consumers and merchants because it was able to charge exorbitant fees. 

The company has also faced harsh criticism on Capitol Hill where Democrat Dick Durbin and Republican Roger Marshall teamed up in 2022 to sponsor the Credit Card Competition Act proposal, seeking to foster more competition for Visa and its no. 2 rival, Mastercard. During a hearing on that issue last month, even Republicans castigated a Visa executive over the company’s escalating interchange fees imposed on merchants. As a senator, now Republican Vice President J.D. Vance was also a sponsor of the legislation.

The competitive digital wallet arena

A lot of digital wallet companies have beat X to the field. PayPal and its Venmo peer-to-peer payments unit have been burnishing digital wallet applications for years, attracting both merchant and consumer users. PayPal now has hundreds of millions of consumer accounts and tens of millions of merchant accounts.

In addition, tech titans Google and Apple have been spooling up their payments plays, expanding to add features that make them more useful to consumers. 

Block’s Cash App has also become a major player, with merchants using the Square service and consumers now able to tap the company’s Afterpay buy now, pay later options.

Still, X is formidable. As of last year, it had about 336 million users worldwide, down from 368 million over the past three years, according to Statistica. And Visa is X’s first digital wallet partner, Yaccarino said. 

It’s a strong one, given Visa is the largest U.S. card network and the second-biggest in the world. That makes an attention-getting difference, said Peter Tapling, a Chicago-based industry consultant who formerly worked for Early Warning Services, the company behind Zelle. The move “adds some credibility” to X’s wallet efforts, he said by email.

For Visa, it’s one more way in which the company can insert its hand into the payments flow for some sort of a payout. “Visa wants to be in the middle of any payment anywhere,” Tapling said.

Monetizing the X payments play

Visa may ultimately serve as more than just a network for X as the social media company seeks to monetize the new wallet. It remains a question as to how X will earn income, whether from merchant or consumer fees. The network could provide the functionality that merchants expect for processing transactions. 

Musk “might be thinking further down the road,” said Jed Rice, a former PayPal executive. “The challenge for every peer-to-peer network is to figure out how to monetize” the service, he said.

To make money, there has to be a framework for refunds, chargebacks, fraud monitoring and other features, Rice explained. “Anytime you start moving from a peer-to-peer network to a commercial payment network where you’re going to charge fees, merchants who pay those fees will expect a certain level of functionality,” he said.

“There’s a lot here that can go wrong and that might be why he’s thinking ‘I need to ride Visa’s rails,’” Rice said.

Dive Brief:

• The Consumer Financial Protection Bureau this month sought to reinforce the rights of consumers to dispute errors and avoid liability for unauthorized transfers when using digital payments, as part of a proposed interpretive rule under the Electronic Fund Transfer Act and the related Regulation E.
• The federal agency issued those views on digital payment regulation in the Jan. 10 rule proposal in the last days of the Biden administration, noting consumers’ increasing use of money transfer apps and other digital tools offered by technology companies rapidly innovating in the arena. 
• “The CFPB is concerned that if market participants do not apply EFTA and Regulation E in a consistent manner, consumers making electronic fund transfers using accounts established primarily for personal, family, or household purposes might face challenges in vindicating their rights in the event of unauthorized transfers and other errors,” the agency said in a Jan. 15 interpretive rule published in the Federal Register.

Dive Insight:

Under Director Rohit Chopra, the CFPB issued a flurry of reports and rule actions last week just before the inauguration of President Trump. Chopra has remained in his appointed post despite the likelihood he will be bumped by the new administration that took over from former President Biden on Monday.

Chopra has been particularly concerned with improving oversight of emerging electronic payments services developed by technology companies. In November, the CFPB finalized a rule to oversee big tech companies that offer digital wallet apps and other electronic money transfer services.

In its eleventh-hour barrage of regulatory actions under Biden, the agency also issued a report on buy now, pay later use and an interpretive rule related to how online gaming platforms are subject to the Electronic Fund Transfer Act. In addition, it withdrew a rule proposal barring bank fees on certain declined transactions, reserving its option to pursue a “more comprehensive approach.”

Regarding the latest interpretive rule for digital payments, the federal agency said it was worried about leaving some payments providers, such as financial institutions, at a disadvantage as competition among new paytech providers rises. “The CFPB is also concerned that inconsistent application of EFTA and Regulation E might put certain providers at an unfair, competitive disadvantage,” the agency said in the rule proposal.

With the new interpretive rule “the CFPB outlined a framework regarding when the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E apply to emerging digital payments systems, such as those offered by large technology companies and video game platforms, including platforms that utilize virtual currencies,” a Jan. 16 post by lawyers at the law firm Cooley said.

The CFPB’s interpretive rule proposal makes clear what various payments terms mean under the law in the realm of digital payments tools. For instance, it provides context for interpretation of the words ‘funds’ and ‘accounts.’

Under the proposal, “accounts on video game platforms used to purchase virtual items, virtual currency wallets that can be used to buy goods and services or make P2P transfers, and credit card rewards points accounts that can be used for future purchases could all be considered ‘accounts’ subject to the EFTA and Regulation E,” the Cooley post said.

The CFPB asked for public comment on the rule proposal and could take that input into consideration before it finalizes the rule, but it’s not under any obligation to do so in moving ahead with the rule. The deadline for those comments is March 31.

In a separate action, the agency last week also asked for public comment on “how companies that offer or provide consumer financial products or services collect, use, share, and protect consumers’ personal financial data, such as data harvested from consumer payments.” With digital tools proliferating, companies have ever more data at their disposal for marketing and consumer research.

Dive Brief:

• The Consumer Financial Protection Bureau on Friday proposed an interpretive rule that puts video game companies under the same umbrella as some traditional financial institutions. 

• The companies that run virtual gaming worlds, such as the popular online game World of Warcraft, are subject to the Electronic Fund Transfer Act, the agency said in a news release. 

• "The payment systems on these gaming platforms have evolved rapidly," The interpretive rule says. "Rather than relying on a business model in which players make a one-time payment to buy or play the game, some gaming platforms have developed elaborate economies where the platforms accept US dollars in exchange for virtual currency that can be transacted among players and other platform participants."

Dive Insight:

The 1978 Electronic Fund Transfer Act established rights for consumers who transfer money electronically, and includes the rights to refunds in some instances and the right to dispute transactions. 

Video game companies with payment systems must comply with the law, the CFPB's interpretive rule says.

The agency also wants feedback from young video gamers and their parents on their experience with gaming assets and transactions, the agency said in a blog post published Friday. The bureau wants to know how these payment experiences are changing as video games become more advanced.

CFPB research published in April found that operators of virtual gaming worlds don't seem to offer the same protections as traditional financial institutions such as banks, which are governed by consumer protection laws. 

The bureau identified theft, scams, fraud and money laundering as several issues in these virtual marketplaces. Gamers seem to have little recourse if they lose money through scams, fraud or theft, the report said.

Two organizations that represent video game companies, the International Game Developers Association and the Entertainment Software Association, did not immediately respond to requests for comment on the CFPB’s interpretive rule.

The CFPB also has an eye on protecting consumer privacy. In its request for information, the bureau said it wants to know about the effectiveness of privacy rules and wants suggestions on strengthening privacy frameworks along with the types of data that the agency should monitor.

"When people pay for their family expenses using new forms of digital payments, they must be confident that their transactions are not tainted by harmful surveillance or errors," CFPB director Rohit Chopra said in the news release. 

The agency cited its own research in the news release, which found that some payment mechanisms collect more data than is needed to finish a payment transaction. Some payment systems are collecting users' location and browsing history, the news release said.

Financial technology companies are required to give consumers a way to opt out of data collection, but the news release cited a government accountability office report that found a relatively low number of consumers choose that option.