Nov. 13, 2018 | by Elliot Maras
At left, Ulrike Guigui of Deloitte Consulting poses a question to Debbie Gamble of Interac Corp.
"If you can't beat them, join them." The adage could be applied to the evolving relationship between banks and the fintechs that have become popular with consumers seeking an easy-to-use payment network. The evolving relationships between the established financial institutions and the younger technology players was a persistent theme throughout the recent Money20/20 conference in Las Vegas.
Two fintech/bank partnerships, the Zelle network in the U.S. and Interac Corp. in Canada, were the focus of a session exploring these emerging relationships, "P2P payments: can the banks give fintechs a run for their money?" An audience poll at the start of the session indicated that nearly half (45 percent) believe that fintechs will dominate the payments space.
Interac dominates Canadian payments
Interac Corp., a provider of debit and money transfer solutions that was formed by Canadian financial institutions, has emerged as Canada's leading payment network, allowing consumers to send money using their smart phones to merchants, said Debbie Gamble, vice president of the company's digital products and platforms.
Interac traces its roots to 1984 as a cooperative among Canadian banks known as the Interac Association, which offered a shared network providing Canadians access to ABMs nationwide. In 1994, the service expanded to include Interact Flash, a contactless payment system allowing cardholders to make payments at point-of-sale readers.
In 1996, eight financial institutions created a company called Acxsys Corportion to provide new business services, specializing in payments and related services, including the Interac interbank transfer services, online payments from banking accounts, mobile payments and point-of-sale access at roughly 2 million U.S. retailers, and ABM access for cash withdrawals to foreign cardholders in Canada. Acxsys Corporation has since reorganized as Interac Corp.
Interac last year introduced Debit on Android Pay, enabling consumers with debit cards issued by BMO Financial Group, CIBC, Desjardins and Scotiabank to pay with Android Pay at hundreds of thousands of merchant locations in Canada where Interac contactless payments were already accepted.
In the past year, Interac has experienced 50 percent growth as use cases are increasing, Gamble said. The network has been embraced by business customers as well consumers, she said.
Gamble said the relationship between banks and fintechs has evolved beyond "either or" and has become more nuanced. Banks, said Gamble, are working with accelerated incubators and developers using APIs to create more compelling solutions for consumers.
Zelle makes waves in the U.S.
The Zelle network in the U.S. was also spearheaded by financial institutions, said Jamie Armistead, Zelle business line leader at Early Warning Services LLC, a provider of real-time payments, authentication and risk mitigation.
Early Warning announced Zelle in 2016 as a consumer facing app for P2P payments as a way for bank customers to send, request and split payments with friends and family. The network allows anyone with a checking or savings account to receive payments by registering at the Zelle website or using the Zelle app with a valid debit card account. Zelle allows consumers to send money within minutes using their mobile phones to anyone with a U.S. bank account via email, a mobile banking app or the Zelle app.
"We're excited with the growth that we've seen," Armistead said, adding that the service provides a uniform experience for users sending funds from financial institutions of all sizes. Zelle, which is open to all U.S. banks and credit unions, processed 116 million transactions for a total of $32 billion in payments in the third quarter of 2018. Transaction volume rose 16 percent quarter-over-quarter, and total volume moved increased 13 percent.
While millennials are the service's dominant customers, accounting for 75 percent of all users, people of all ages are using it, Armistead said. Customers use Zelle for making high volume payments, splitting bills and other everyday uses, she said.
Offering such a service on their own would present a considerable investment for a bank, said session moderator Ulrike Guigui, managing director of Deloitte Consulting. Guigui said Zelle provides customers certainty that transactions will be complete.
Bank of America last year integrated some Zelle functionalities within its own online and mobile banking portals. BofA CEO Brian Moynihan commented on the bank's success as part of the Zelle network, stating during the bank's Q1 earnings call that customers sent $8 billion in payments to its person-to-person apps in Q1, which was up 25 percent over the prior year.
Credit card issuers have also entered the P2P space, but Armistead doesn't see this as competition, as both major credit card issuers are Zelle network partners. Mastercard Send and Visa Direct allow users to send and receive digital payments within seconds.
While the emergence of fintechs has challenged established financial service institutions, the collaboration taking place has blurred the some of the distinctions between the two.
Topics: Bill Payment, Contactless / NFC, Mobile Banking, Mobile/Digital Wallet, Trends / Statistics
Companies: Bank of America, Interac, Visa, MasterCard
Elliot Maras
Elliot Maras is the editor of KioskMarketplace.com and FoodTruckOperator.com.
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