As consumers, we are spoiled rotten and have ourselves to blame.
Banks and credit unions reward us for paying with a credit card. But who is paying for those rewards? At first glance, the merchants accepting credit card payments absorb the average 3% cost. In reality, businesses raise prices to customers to help offset the added expense. We all pay more so credit card companies and banks can profit.
Now at checkout, we can split our purchases over three or four payments — commonly referred to as Buy Now Pay Later (BNPL). I remember my single mother of six using the department store’s layaway service, the predecessor to BNPL. Back then, stores kept the layaway items in storage until customers paid the account in full.
Buy Now Pay Later (BNPL)
Many merchants have wised up and offered a lower price to customers paying with cash. Post-pandemic, however, businesses changed their payment policy to no longer accept cash. Several fuel retailers provide a discount at the pump for customers paying with a checking account linked to a store card or mobile app. These are only two examples of merchants taking control of their customers’ spending behaviors.
The Great Reallocation Has Begun
Now enter Pay-by-Bank — a new service in the U.S. where consumers can pay merchants directly and instantly from their checking accounts. Think of it as a direct, digital cash deposit for merchants at the point of sale. These bank-to-bank payments bypass the credit card networks and reallocate value back to merchants and consumers directly — the backbone of the U.S. economy.
Digital Bank-to-Bank Cash Deposits for Merchants
Removing card swipe fees from merchants’ operating costs frees up funds to offer incentives to customers for paying with their bank accounts. Want a free muffin with that cup of coffee? Pay-by-Bank. Looking for instant cashback at checkout? Pay-by-Bank.
Gaining widespread adoption by consumers and acceptance by merchants is no small feat. Moreover, the U.S. banking infrastructure for digital, faster payments has been slow. Enter FedNow(SM) — the faster payments network soon to be available for all banks and their customers. Between bank-owned, The RTP Network(R) and Federal Reserve FedNow bank-to-bank digital cash payments, the U.S. market is preparing to catch up and potentially surpass digital payments from other developed countries.
Watch this space. It foreshadows Central Bank Digital Currencies (CDBC).