Walmart’s pay-by-bank service could be a game changer for grocery industry

With Walmart joining global financial services tech company Fiserv on Monday to offer shoppers pay-by-bank opportunities, a new movement for retailers could be on the horizon, one that reduces the burden of credit card swipe fees. 

Credit card swipe fees continue to be a significant cost for retailers, amounting to $172 billion in 2023, according to the Nilson Report, a publication that covers the global payment card industry. Merchants also pay interchange fees when customers use debit cards. 

Starting in 2025, Walmart shoppers will be able to use pay-by-bank when making online purchases. Transactions will occur over Fiserv’s NOW Network, which integrates with The Clearing House’s Real Time Payments network and FedNow, a product of the Federal Reserve.

In September, Fiserv and Walmart completed their first pay-by-bank transaction over the Fiserv NOW Network. The transaction was a proof-of-concept, and the full service will roll out in the near future.

“We’re pleased to bring the option of real-time payments forward in retail,” said Walmart in an emailed statement to Supermarket News. “We expect this new option for real-time consumer payments will further help provide shoppers with a greater choice in paying online.”

For shoppers, pay-by-bank provides a more seamless and convenient customer experience online compared to debit cards. Rather than having to manually type the routing and bank account number, the user interface is typically a drop-down menu with participating banks, and the customer can select their bank to add as a payment method. With real-time payments, the money is also moved instantly from the consumer’s account to the retailer’s account and balance updated in real-time.

“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,” said Elisa Tavilla, director, Debit Payments, for Javelin Strategy & Research, an insight and consulting service provider in the areas of payments, digital banking, fraud and security, and wealth management.

Tavilla, however, noted Americans have a love affair with their credit cards due to programs that offer points-based rewards and cash-back incentives.

If Walmart, which came out with pay-by-bank option Walmart Pay earlier this year, can find a way to lure customers away from paying with a credit card, it would be a trailblazer of an entirely new process. At this time, the retailer has not revealed any incentives shoppers would receive if they convert to the pay-by-bank platform.

The drawback with Walmart Pay is it takes a few days for the transaction to appear in a customer’s bank account. The new pay-by-bank platform is an instant transaction. 

Competing against the credit card companies, however, could be a tall order.

“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,” said Nick Ewan, senior editorial director for loyalty points website The Points Guy. “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.

“And so I think, really, time will tell whether this is something that really does take off.”

Credit cards also offer better security breach protection, whereas pay-by-bank platforms offer bank-level security. If a suspicious transaction comes through, credit card companies are quick to notify the card holder and cover any fraudulent activity. Shoppers must monitor themselves with pay-by-bank programs and deal with their financial institution, which has more limited powers with fraudulent charges.

“Generally, debit card transactions have a much … higher additional potential for your liability if you don’t notice something and report it on time,” said Ewan. “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.”

Both Ewan and Tavilla believe only large retailers have the capacity to offer pay-by-bank services right now, but the evolution of technology could change the landscape.

“I think this has the potential to become a trend,” said Tavilla. “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.”