Big Banks May Use Payment Service Zelle to Take on Mastercard and Visa

Image Credit: iStock, Massimo Giachetti

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America’s big banks are in a football huddle about whether to call an audible that would screen credit card companies out from one of their most lucrative revenue sources.

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

The Swipe Sweepstakes

Every time a consumer swipes, taps, or inserts their credit or debit card, the merchant being paid is quietly hit with a fee of around 2% by the card issuer. Last year, American Express, Discover, Mastercard, Visa, and private label credit cards made $105 billion from those fees, according to analysts at Nilson, in what might be the most lucrative middleman gig in the world.

Banks, too, make billions every year from the fees, which are divvied up with card issuers. Which means circumventing card companies could net banks even more money, a thing they notoriously love. It just so happens that seven US banks — Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, US Bank, and Wells Fargo — co-own an increasingly popular online payments app called Zelle. Originally launched to compete with PayPal’s Venmo and Block’s Cash App, some think it could be better positioned to take on card issuers:

  • The banks are reportedly considering creating a payment option on Zelle where money could go from a customer’s bank account to a merchant. Zelle, used by 1,425 banks and credit unions, handled 1.8 billion transactions last year, with $490 billion changing hands. That’s more than double 2019 figures and laps Venmo’s $230 billion worth of processed transactions.
  • According to sources who spoke to the WSJ, Wells Fargo and Bank of America are in favor of the move, but JPMorgan, US Bank, and Capital One are on the fence.

Been Done Before: Mobile payments apps WeChat Pay and AliPay are wildly popular in Asia and established a foothold there even before the pandemic. According to McKinsey, the region was responsible for $900 billion in revenue for the global payments industry in 2019, almost half the total.