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US Banks toughen competition in digital wallet race

US Banks toughen competition in digital wallet race

That consumers are turning to digital wallets at an increasingly faster pace is no major headline. However, the losses that the move could cause banks is definitely a painful awakening that the banks are now trying to counter.

Next-generation payment methods such as account-to-account transfers and digital wallets are gaining traction globally. Their growth comes at the expense of debit and credit cards and other traditional payments, according to a study by Accenture.

Accenture estimates that such changes in consumer payments preferences will put up to $31.4 billion of revenue at risk for US banks in coming years (2023 through 2026).

To avoid these revenue losses, banks must begin to explore newer payment channels or come up with competitive moves to counter the growing consumer trend – more of which later.

Credit and debit cards still dominate in payments, but next-generation methods are making meaningful progress.

In the report, Payments Get Personal, Accenture asked survey participants which payment methods they used at least five times monthly. Debit cards were cited by 63% of Americans, followed by credit cards at 53%.

However, nearly half (46%) of US consumers use at least one digital wallet, such as Apple Pay, Google Pay and PayPal. Digital wallets may include both bank and nonbank payment streams.

In a telling statistic, the study found that globally about a third of credit card users are considering shifting some in-person spending to alternatives: 21% cited debit cards, 12%, BNPL, and 4%, prepaid cards.

Up until now, the banks have remained reasonably complacent as most digital and mobile wallets use the card rails, meaning as they grow, the issuing banks grow.

But this is changing and changing fast, so fast in fact that seven major US banks have finally seen the threat and are working on a digital wallet that will compete with services from the likes of PayPal and Apple.

The new product will allow shoppers to purchase goods with wallets linked to debit and credit cards. The wallet will be managed by Early Warning Services, a company owned by the banks that currently operates the money transfer service Zelle.

Banks backing the proposal include Well Fargo, Bank of America, JPMorgan, Capital One, PNC Financial Services, US Bancorp and Truist Bank.

Competing with Apple Pay and PayPal is said to be the driving motivator behind the service, with the banks concerned about losing control of their customer relationships.

Although online payments may be the headline motivation, banks are also said to be concerned about Apple’s move into broader financial services, including personal and savings accounts as well as its BNPL offering.

The unnamed service is expected to begin rolling out in H2 2023, with more than 150 million customers eligible to use the service. American banks have often been slow to roll out new and innovative services in the past, let alone a joint wallet, but having an existing potential customer base of 150 million is a great starting point.

The threat presented to the banks by Apple may be somewhat exaggerated, although that could change in the coming years.

Apple Pay is currently forecast to have 48.7 million users in the US this year, with one in six consumers using Apple Pay at least once a month. Apple Pay is also believed to have a 48% share of the mobile wallet market.


The post US Banks toughen competition in digital wallet race appeared first on Payments Cards & Mobile.

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