In a move poised to reshape the landscape of online retail transactions, Walmart is partnering with financial technology giant Fiserv to introduce a pay-by-bank option for its online shoppers. This strategic initiative, announced recently, signals a potential shift in how retailers manage transaction costs and offer payment flexibility to consumers. The core motivation behind this development is the significant burden of credit card swipe fees, which continue to eat into retailer profits.
Credit card swipe fees have become a substantial expense for businesses, reaching a staggering $172 billion in 2023 alone, according to industry reports from the Nilson Report. These fees, along with interchange fees associated with debit card usage, erode merchant margins and prompt the search for more cost-effective payment alternatives. Walmart’s adoption of pay-by-bank represents a bold step in this direction, aiming to alleviate these financial pressures while enhancing the customer payment experience.
Alt Text: A customer conveniently completes an online purchase using their smartphone, illustrating the ease of digital payment methods.
The new pay-by-bank feature is slated to become available to Walmart online shoppers starting in 2025. Transactions will be processed through Fiserv’s NOW Network, a robust platform that integrates seamlessly with The Clearing House’s Real Time Payments network and the Federal Reserve’s FedNow service. This integration ensures near-instantaneous transaction processing, a key advantage over traditional payment methods.
Walmart and Fiserv successfully completed their first pay-by-bank transaction in September, marking a crucial proof-of-concept milestone. This successful pilot paves the way for the full-scale rollout of the service in the near future. Walmart, in an official statement, emphasized its commitment to providing shoppers with expanded payment choices, stating, “We expect this new option for real-time consumer payments will further help provide shoppers with a greater choice in paying online.”
For consumers, the pay-by-bank system promises a smoother and more user-friendly online payment experience compared to traditional debit card entries. Instead of manually inputting routing and bank account numbers, customers will typically encounter a simple drop-down menu listing participating banks. From this menu, they can effortlessly select their bank and link it as their preferred payment method. The real-time nature of these payments ensures that funds are transferred instantly from the consumer’s account to the retailer’s, with balances updated in real-time, offering enhanced clarity and control over finances.
Alt Text: User-friendly bank selection menu on a mobile device simplifies the pay-by-bank process for online shoppers.
Industry experts believe that the pay-by-bank initiative addresses a long-standing need within the merchant community. Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, notes, “I know the merchant community for the longest time has been trying to find alternative payment methods to credit cards in particular to save on the processing and interchange fees associated with the cards.” The potential for significant cost savings is a major driver for retailers exploring alternatives to credit card payments.
However, the widespread adoption of pay-by-bank faces certain hurdles, notably the entrenched popularity of credit cards among American consumers. Credit cards often come with attractive rewards programs, such as points-based systems and cash-back incentives, which incentivize their use. Tavilla points out this “love affair” with credit cards, suggesting that shifting consumer behavior may require more than just convenience.
Walmart previously introduced Walmart Pay, a similar pay-by-bank option, earlier in the year, indicating their ongoing commitment to this payment method. If Walmart can successfully incentivize customers to transition from credit cards to pay-by-bank, it could establish a groundbreaking precedent for the retail industry. Currently, Walmart has not disclosed any specific incentives that shoppers might receive for adopting the new pay-by-bank platform. A key improvement in this new platform compared to the earlier Walmart Pay is the speed of transactions. While Walmart Pay transactions could take a few days to reflect in a customer’s bank account, the new pay-by-bank platform offers instant transaction processing.
The challenge of competing against the well-established credit card industry is significant. Nick Ewan, Senior Editorial Director at The Points Guy, a loyalty points website, raises the crucial question of consumer motivation: “I think the level of adoption is really going to depend on what is in it for me as a consumer to use this option versus another option. If there is not that added incentive like you would have with a cash-back credit card or a rewards credit card. then it might be a little bit more limited.” Ewan suggests that the success of pay-by-bank will hinge on providing compelling reasons for consumers to switch from their preferred credit card payment methods.
Another consideration is security. While pay-by-bank platforms offer robust bank-level security, credit cards are often perceived as offering superior protection against fraud. Credit card companies typically provide rapid notifications for suspicious transactions and cover fraudulent activity, offering a safety net for consumers. With pay-by-bank, shoppers are more responsible for monitoring their accounts and resolving any issues directly with their financial institution, which may have more limited recourse in cases of fraudulent charges.
Ewan highlights this potential drawback, stating, “Generally, debit card transactions have a much … higher additional potential for your liability if you don’t notice something and report it on time. So theoretically a fraudster could potentially gain access to your information within a Walmart [system] and potentially drain your bank account by making unauthorized purchases.” This perception of potentially higher fraud liability could be a barrier to wider consumer adoption.
Despite these challenges, both Ewan and Tavilla agree that pay-by-bank services currently are most feasible for large retailers like Walmart, possessing the necessary infrastructure and resources. However, they acknowledge that technological advancements could democratize access to these systems, potentially making them viable for smaller retailers in the future.
Tavilla concludes optimistically, “I think this has the potential to become a trend. I can see if the solution works for Walmart, it could work with any retailer. If Walmart is the success story and an example for the industry, other retailers and merchants will follow.” Walmart’s foray into pay-by-bank could indeed mark the beginning of a significant shift in the retail payment ecosystem, offering both cost advantages for businesses and enhanced convenience for tech-savvy consumers, provided that concerns around incentives and security are effectively addressed.
