The banking industry’s answer to Apple Pay, Google Pay and other nonbank digital wallets — called “Paze” — is moving closer to the pilot stage.
Full implementation — initially at seven of the largest banks in the country — is expected in time for the 2023 holiday shopping season.
In many ways Paze isn’t meant to compete directly with existing digital wallets.
Here’s the key difference: Consumers won’t be waving their mobile phones over payment terminals to use this new wallet. It’s for ecommerce transactions only.
“We have no plans to go beyond ecommerce,” says James Anderson, managing director at Early Warning Services, the consortium behind Paze. “We think that’s where the problems for consumers and merchants exist, and so that’s where the opportunities to improve things exist.”
Anderson adds that one can “never say never,” but stresses that the plan with Paze is to operate where some white space exists, not create just another digital wallet with no differentiation. This provides at least a partial answer to early criticism of the big banks’ initiative as a “me too” effort.
“Truth be told, physical point of sale works pretty well,” in terms of digital wallet use, adds Anderson, a payments veteran. “When we started working on this, from the get-go, we realized that you’re not going to be relevant unless you solve somebody’s problems. The problems we see and that we hear about from consumers and merchants concern online remote payment. So that’s our clear focus and mandate.”
The Rationale Behind the Paze Digital Wallet
Some might argue that such a narrow focus makes Paze less relevant.
But Anderson says Early Warning and its owner banks — Bank of America, Capital One, JPMorgan Chase, PNC Financial Services, Truist, U.S. Bancorp and Wells Fargo — see the line between point-of-sale commerce and ecommerce blurring.
One example is in-store pickup, where consumers buy via ecommerce but pick up their items physically at the store or curbside. “They’re merging, in many ways,” Anderson says.
But why are the banks interested in their own digital wallet now? Is it an offensive move or defensive one?
“I would say it is a move around relevance,” Anderson says. Banks and credit unions have seen their credit and debit cards loaded into nonbank digital wallets for years now. This puts the banks in a somewhat passive role at the checkout, even though they retain the transaction volume.
“They don’t want to be just participating,” Anderson says. They want to be seen as solution providers that improve the payment experience for consumers and merchants.
Anderson’s interview with The Financial Brand took place while he was at a merchant conference to tout Paze. Time is tight for getting merchants on board before the fall launch — which is just one of many reasons skepticism about the effort remains.
Here’s an overview of how Paze will work and industry reaction.
What’s Clunky About Ecommerce Payments for Consumers?
The Paze launch later in the year will start with the seven banks that own Early Warning Services, but the plan is to quickly add many other financial institutions. Eventually every U.S. financial institution will be able to join. This broader participation is important because of how Paze will differ from other digital wallet offerings.
Early Warning Services will create a Paze digital wallet for each of the credit and debit card customers of participating institutions, according to Anderson. This wallet will come pre-loaded with the customer’s payment details for any existing credit or debit cards they have at any of the participating financial institutions.
“There’s no website to go to, to create a Paze wallet from cold, and there’s no way for a consumer to add a card from a nonparticipating institution. Everything comes in through the financial institutions. That means each relationship has been through a know-your-customer process.”
— James Anderson, Early Warning Services
Anderson argues that this approach is superior to efforts to launch single-bank wallets, which he says ignored consumers’ desire to be able to choose among accounts when making a payment.
The approach is also different from consumers having to load their cards into, say, Apple Pay or Google Pay. That chore goes away in this case.
All of the cards that are in a Paze wallet will be converted into “network tokens” for improved security as well.
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What Paze Digital Wallet Enrollment Will Look Like
Unlike other digital wallets, Paze is not going to reside on a user’s phone.
But consumers can activate it in two ways. One is by “claiming” it while logged into the website or app they use to access their card account.
The other is: When they are making a purchase from a participating merchant, they can select Paze from the menu of payment options. Then they will need to use multifactor authentication to verify who they are. And as the next step — just for that first time using Paze — they will be asked to choose the card that will be their default.
In the spirit of fairness, the initial order of card providers will be randomized, and after a default is selected, all other relationships shown will be randomized with each visit. (Anderson jokes that Bank of America might be in favor of the cards being listed in alphabetical order, but Wells Fargo not so much.)
The verification step will not apply when consumers activate the Paze digital wallet via a card account. In that case consumers would already be logged into their card account, which would suffice to confirm their identity.
Information such as the consumer’s email, billing and shipping addresses will also be pre-loaded into the wallet. The latter is intended for consumer convenience. But the email is meant to help get merchants interested.
“We’re encouraging merchants to use the data in the Paze wallet if they want to,” Anderson says. “It’s a very big differentiator, if the consumer consents to create an account in ‘merchant land.'”
Selling Both Consumers and Merchants on Paze
Early Warning Services expects the consumer data in the Paze digital wallet to be very compelling for ecommerce merchants.
Typically, merchants don’t make money on the first transaction, Anderson says. “They only make money on repeat transactions. So they want to get that repeat transaction. They want to send consumers emails. They want to send them offers.”
Paze users can opt-in to receive offers from a merchant without having to deal with the hassle of providing any info.
Merchants gain access to marketing information in an automated fashion. They also are initiating a transaction using pre-vetted data, which should result in fewer denied transactions.
Early Warning Services and the participating banks offer another incentive too: Merchants pay no extra fees for accepting Paze transactions beyond those ordinarily charged for accepting the underlying credit or debit card. How long will that pricing be in effect? “Forever,” Anderson says.
“Other wallets are charging extra, but we’re not charging anything extra for Paze.”
— James Anderson, Early Warning Services
Pilots should begin in June and July. Creation of the wallets on a broad scale will happen in August and September.
Anderson anticipates that marketing will begin at the bank level first, with participating institutions telling their customers that the new payment option is becoming available. This is likely to start in August.
Early Warning Services’ own marketing for Paze is expected to roll out in October, with a spending push to drive usage during the holiday season.
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Tricky Timing for Paze on Securing Merchant Acceptance
The yearend timing is typical for new payments launches, because of the potential for picking up heavy initial volume, according to payments consultant Richard Crone.
But one challenge for Paze is that merchant acceptance must be won before the “retail freeze.” That’s the point, months before Christmas, when retailers will stop making any changes to their payment options. The freeze remains in effect until after the holiday crunch.
Crone says the timing is tricky for Paze because the freeze can begin in late August or early September.
For Paze to be attractive to consumers, they have to know that merchants will accept this new digital wallet. Merchants, for their part, want to see consumer adoption high enough to convince them that Paze will improve sales volume. The chicken-egg challenge is standard operating procedure for payments, says Anderson.
The big lure dangled so far is the collective 150 million credit and debit card accounts that the initial seven banks represent. That’s a lot of empowered purchasers — if they claim their wallets and if they use them and if there are enough participating merchants to use them at.
All those ifs aside, marketing to merchants is already underway, including appearances at merchant conferences. Anderson says that the reception has been positive and that some potentially significant signups are in discussion, though he provided no further detail.
What would a first-year victory look like? “I want to be visible and present on a pretty large number of the top 200 ecommerce websites in 2023,” says Anderson.
Will Paze Lead to Effective Bank Wallet Competition?
Ever since word about a digital wallet from Early Warning Services leaked in January, there’s been a lot of negative talk about Paze.
Crone is among those who are skeptical about the drawing power of the 150 million people who will have Paze access initially.
“Each wallet has to be opted into one at a time. And even if Paze can achieve critical mass with their numbers, unless the merchants accept the wallet, it will be dead on arrival.”
— Richard Crone, payment consultant
As Crone sees it, a potential stumbling block will be that first experience on merchant ecommerce sites. Just what that will look like isn’t known yet. More than likely, he says, what the consumer will see that first time is some kind of popup screen, “and popups are the kiss of death in e-commerce checkout. Anything that interrupts the flow of the transaction is going to be resisted by merchants.”
The reason for consumers’ reticence: Popups that require an action have a bad rep, because they are sometimes used by bad actors, Crone says.
Merchants worry about popups too because any interruption can increase abandonment rates and reduce sales.
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Do Consumers Really Want What Paze Offers?
Jordan Hirschfield, an analyst with Javelin Strategy & Research, questions whether Paze has sufficient muscle to be attractive to consumers. As proposed, it will handle payments but not for people who are physically at a store. Hirschfield says he is a non-card-carrying consumer — that is, he is so much a lover of mobile digital wallets that he carries no actual “cards” anymore. But he also stores all kinds of other documents, including airline tickets, sporting event tickets and more, in his digital wallet. A wallet that only does payments leaves him unexcited.
The idea of simplifying ecommerce via Paze doesn’t impress him either. As a knowledgeable student of online commerce, Hirschfield says he has no trouble entering data online as a guest — he doesn’t feel the need for a wallet doing ecommerce. He doesn’t see it being any easier than simply using a card directly.
Zelle, also operated by Early Warning Services, has been a success story in person-to-person payments, but Crone doubts Paze will be able to ride Zelle’s coattails. The P2P service has taken a hit in public perception, due to fraud issues.
Crone suggests that adding some consumer incentives to drive the initial use of Paze would increase the appeal. That also could help with another barrier Crone brings up: Many people already have their cards in a digital wallet. How do you get them to add another wallet into their payment mix or switch to a new wallet for just ecommerce?
Amazon and Walmart Aren’t Likely to Play with Paze
There’s also some skepticism about starting a competitive wallet in the ecommerce world exclusively. Crone points out that some of the biggest ecommerce merchants, including Amazon and Walmart, have their own digital wallets. He questions whether they would give Paze any opening. If not, that cuts out a huge piece of ecommerce volume — north of 60% — from the start.
Another wrinkle is relations between these companies and banks they work with. Amazon has a big, successful card program with JPMorgan Chase that Crone suggests it would be loathe to eat into. On the flip side, Walmart is currently suing its private label card issuer — Capital One — to get out of its contract early. Crone questions whether there would be any appeal in simultaneously getting into a deal with a consortium that Capital One is part of.
And, going back to the consumer side, Javelin’s Hirschfield says he thinks consumers see their credit card relationships, even with the same bank, as a separate matter from their banking relationship. For that reason, he thinks bank loyalty is unlikely to play a part in stimulating interest in the Paze digital wallet. Credit cardholders focus on points and offers, not the bank behind the card, he says.