Plaid, a company known for connecting customers’ bank accounts with fintech apps, is expanding to provide real-time bank transfers. The updated service allows businesses to disburse loan payments, insurance payouts or wages instantly.
Plaid’s Transfer service helps businesses, mostly other fintechs, move funds between bank accounts. The product now utilizes the Real Time Payments (RTP) network, a five-year-old money movement platform owned by a consortium of large U.S. banks, allowing for instant bank transfers. Before adding support for RTP, all transactions occurred using the dominant, decades-old system for bank-to-bank fund transfers in America, the Automated Clearing House (ACH). ACH transfers typically take one to three business days, unless users pay a fee for a same – or next – day transaction. In addition to disbursements, Transfer can be used to fund new accounts.
It could also benefit consumers who live paycheck-to-paycheck by helping them get access to their wages faster, instead of waiting the one to three days that it typically takes an ACH transfer to settle.
Plaid’s ambition is for Transfer to be at the forefront of bank payments in the United States. Transfer could potentially grow from a set of uses like insurance and wage payouts to a wider set of occasions like paying bills or merchants directly from a bank account, says John Anderson, Plaid’s head of payments. If “pay by bank,” already popular in Europe and Asia, were to build momentum in the United States it could divert consumers away from the card networks.
More consumers paying by bank would be a welcome change to merchants, who have to pay Visa
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and Mastercard’s
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1% to 2% interchange fees every time a consumer swipes a card.
“The US has historically been card-based, but if you think about bank payments around the world when you have a native user experience and a solid way to move the money, consumer expectations start to shift and people start to look forward to and demand the ability to move money with a bank payment,” Anderson says.
While Plaid may have its eye on bringing bank payments mainstream in the United States, industry analyst Tom Noyes is skeptical the company will be able to gain major traction. Noyes points to banks’ modernization efforts and launch of new products to compete with financial startups as a limiting factor for Plaid. Last year, for example, JPMorgan Chase
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launched a product allowing customers to pay bills directly from their bank accounts in partnership with Mastercard.
“The environment is changing with banks modernizing their own APIs,” Noyes says. “The banks themselves are making acquisitions to build Stripe-like interfaces for payment-as-a-service and banking-as-a-service. The banks are moving on this.”
In 2021, Visa canceled plans to acquire Plaid for $5.3 billion after the U.S. Department of Justice filed an antitrust lawsuit opposing the deal. The DOJ argued that the company was attempting to head-off an emerging challenger to its thriving card processing business. “We are confident we would have prevailed in court as Plaid’s capabilities are complementary to Visa’s, not competitive,” Al Kelly, Visa’s CEO at the time, said after calling off the deal.
Despite merchants’ distaste for interchange, card acceptance fees paid to card networks and banks, debit and credit cards are popular in the United States largely because of credit card reward programs and robust fraud protections.
Plaid Transfer’s instant payouts feature signals an increasing movement towards real-time payments in the United States. In July 2023, the Federal Reserve plans to unveil its own publicly-run real time payments network called FedNow.
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