Major banks can use the Zelle payment service to accept Mastercard and Visa

America’s big banks are in a football scrimmage over whether to call an audible that would cut off credit card companies from one of their most lucrative revenue streams.

According to The Wall Street Journal, several notable Wall Street names are planning to expand their use of the Zelle money transfer service to retail purchases, which would come at the expense of card issuers like Mastercard or Visa. Who owns Zelle? The banks.

The Swipe Contest

Every time a consumer swipes, taps or inserts their credit or debit card, the paid merchant is quietly hit with a fee of around 2% by the card issuer. American Express, Discover, Mastercard, Visa and private label credit cards earned $105 billion from these fees last year, Nilson analysts say, in what may be the toughest middleman gig lucrative in the world.

Banks also earn billions each year from fees, which are shared with card issuers. Which means bypassing the card companies could make even more money for the banks, something they notoriously love. It turns out that seven US banks – Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, US Bank and Wells Fargo – are co-owners of an increasingly popular online payment app called Zelle. Originally launched to compete with PayPal’s Venmo and Block’s Cash app, some believe it might be better placed to take on card issuers:

  • Banks are reportedly considering creating a payment option on Zelle where money could flow from a customer’s bank account to a merchant. Zelle, used by 1,425 banks and credit unions, processed 1.8 billion transactions last year, of which $490 billion changed hands. That’s more than double 2019’s numbers and tops Venmo’s $230 billion in processed transactions.
  • According to sources who spoke to the WSJWells Fargo and Bank of America are supportive of the move, but JPMorgan, US Bank and Capital One are on the fence.

Already done : Mobile payment apps WeChat Pay and AliPay are very popular in Asia and have taken root there even before the pandemic. According to McKinsey, the region was responsible for $900 billion in revenue for the global payments industry in 2019, nearly half of the total.

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Elaine R. Knight