By Ken Musante
Napa Payments and Consulting
As a consumer, it's difficult to manage the varied payment methods available. For international transactions, I use a different card than for business transactions. For airline purchases, I use a different card, and for home renovation, still another.
I'm torn when making an international purchase for work, as my business card has a currency conversion fee. I'm a sucker, but I am reluctant to change my business card due to auto-payments, stored credentials and reward programs.
What if there was a better way? What if instead of storing a single payment token, a credential was stored, and I could select the payment method at the time of the transaction?
That's the type of solution Visa is seeking to enable through its Pay-by-Bank offering. Here's a quote about this from BusinessWire, bit.ly/3LOxw9C:
"Non-card payments don't deliver the same experience, security and protections as card-based payments. Electronic payments, like ACH transfers, have been left out of the digital revolution. With pay by bank, Visa is digitizing and streamlining the account-to-account (A2A) payments experience, giving people more choice over how they want to pay, whether that's an A2A transfer, applying for a loan or paying with another funding source, like a credit card. Since its acquisition of Tink, Visa has expanded across Europe, giving millions of bank customers innovative financial management tools and removing friction from their payment experiences. Visa is bringing this new technology to the U.S."
Such an offering will surely disintermediate card payments, and while that is a potential blow to Visa, it's not as impactful as you might think. Consider that the single greatest cost of a card transaction is interchange, and 100 percent of interchange is paid to the issuing bank.
Similar to interchange, Visa's take differs based on criteria such as the card type, region (of the merchant and cardholder) and data submitted with the authorization—but Visa receives a much smaller share of the overall transaction cost.
If Visa moves transactions to its Pay-by-Bank solution, it may expand the Visa use-case and only minimally impact its take rate. Visa's Flexible Credential allows issuers the optionality to extend many funding sources to a single card or product whereby the consumer can determine, at time of checkout, the funding source to tap.
This ability opens an entirely new revenue source for Visa, which may now have greater visibility into transactional data and use that information to market a specific funding source based on the transaction size, available balances or rewards.
Think about an end-of-the-month purchase where Visa could offer a BNPL option or a more traditional loan for a large-ticket item. So long as Visa is able to tokenize the user's credentials and authenticate the user, at the time of the transaction, it can more than make up for the lost card volume by increasing its transaction count and monetizing consumer data. Visa already has a proof of concept running in Europe on its Tink platform and is bringing that to the States.
Consumers will have more choices of how to pay. Embedded banking will mean more than accessing traditional bank products through an app. Customers will be able to aggregate banking services from different banks, fintechs or rewards programs.
More than ever, this will be a scale business. Consumer data will be valuable and conceivably subsidize the cost of a transaction, similar to how pay for order flow, (PFOF) allows brokerage firms to monetize the routing of trades to select market makers.
For banks to play, they will need to serve accounts on a platform that integrates with both their own systems and with competitors, or customers will move to a bank that allows such access. Interchange will be lessened, so issuing banks need to think about how they, too, can offset the loss through additional product sets and features.
Acquirers will need to rely on per-transaction fees rather than a percentage of the transaction. Fintechs have traditionally lived at the margin and will continue to do so, picking off solutions and functionalities that integrate into a greater payments ecosystem.
As to the orchestration layer, or one app to rule them all, Visa owns the pole position. In fact, the title of this article came from their self-titled article, "One Card to Rule Them All," bit.ly/3WFPXUu. Visa has access to existing card rails and is positioning itself to provide greater connectivity.
Visa has the capital and existing relationships, which has shored up its duopoly. I wonder, however, if Visa fully contemplated its title and understood the One Ring was crafted by a seriously deranged dude, the Dark Lord Sauron. And he crafted it on Mount Doom in order to find, bring and "in the darkness bind"—essentially enslaving the world.
It will be interesting to see if Visa's strengths are able to overcome the heft and inertia that accompanies such a large entity, and with its awesome powers, potentially, twist an organization into an unrecognizable form. 
As founder of Humboldt Merchant Services, co-founder of Eureka Payments, and a former executive for such payments innovators as WePay, a division of JPMorgan Chase, Ken Musante has experience in all aspects of successful ISO building. He currently provides consulting services and expert witness testimony as founder of Napa Payments and Consulting, www.napapaymentsandconsulting.com. Contact him at kenm@napapaymentsandconsulting.com 707-601-7656 or www.linkedin.com/in/ken-musante-us.
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