The news that Walmart plans to step up its online pay-by-bank option in 2025 by hooking into both The Clearing House Real-Time Payments network and the Federal Reserve’s FedNow instant payments network has heated up the instant pay agenda in the payments business — and in a hurry.
Payments experts foresee significant implications for banks and credit unions, consumers and other merchants. Many fully expect this approach will migrate to Walmart’s in-store payments experience in its Walmart Pay mobile app before long.
Retail payments encompass a huge number of players on all sides of transactions, but when one of the country’s 800-pound retail gorillas makes a strategic shift to instant payments, that is going to change the conversation, and right quick.
Experts warn that the move is going to change the economic balance between Walmart and the financial institutions where consumers and small businesses hold their transaction balances. Just where the new equilibrium will be depends on the perspective — merchant or financial institution.
“Pay-by-bank is very much a solution that solves the problem for one side of the equation but not for the other side,” says Tony DeSanctis, senior director and payments expert at Cornerstone Advisors.
Peter Davey, venture partner for payments and identity at the Alloy Labs Alliance, points out that a retailer in Walmart’s league receiving payments instantly will enjoy a huge advantage both in availability of funds and lack of interchange fees.
How huge? He says Walmart would obtain “Day Zero” access to funds — availability the same day the purchase is made. In today’s environment, where interest rates remain higher, that makes a difference.
“Walmart will be making millions of dollars a day off of that, and the banks will be making their investment in the technology for absolutely nothing,” says Davey. “And that stinks.”
Richard Crone, head of Crone Consulting, payments advisors, says Walmart’s market reach will mean that the shift to pay by bank by consumers will have a disproportionate effect on small players if customers who presently choose to use their debit cards to avoid credit card use go with pay-by-bank instead.
“Community banks and credit unions don’t have the Durbin Amendment restrictions on debit that the big guys do,” says Crone. “So that’s another bite at the payment revenue side of those institutions that don’t have a strategy for being inside Apple Pay, Google Pay or Walmart Pay, for that matter.”
Nothing in the payments business occurs in a vacuum. Walmart and merchants in general have long objected to the interchange fees charged by card issuers using the four major payment networks (Visa, Mastercard, Discover and American Express), prompting some to institute surcharges where it is legal. Walmart’s market presence is such that its new move could prompt negotiations with the largest U.S. financial institutions — all banks and credit unions have some piece of the expenses of running the banking payments system.
The Walmart development comes in the wake of the rejection earlier this year by a federal judge of a proposed settlement of a decades’-long lawsuit concerning interchange fees and the unveiling in late September of a U.S. Department of Justice civil antitrust suit against Visa concerning debit card processing.
“Walmart, with Fiserv, is forcing a conversation to happen earlier than almost anybody else would have expected it to happen,” says Davey.
The move could lead to incentives for small firms and consumers to convince them to choose instant pay-by-bank payments — to persuade them to give up rewards programs offered for credit card use.
“We have past experience where someone with the girth of Walmart has been able to move a market just by fiat,” says Peter Tapling, managing director of PTap Advisory, “simply by their saying, ‘Hey, this is what we’re going to do’.”
How Walmart’s Move Fits into Today’s Payments Business
“Sailors use a phrase, ‘Make your own wind’,” says payment consultant Tapling. “You get some momentum in the boat and the number of knots you’re getting in the boat adds to the number of knots of wind you have if you are heading up into the wind.”
Tapling says Walmart has made it clear it wants to get away from accepting payments via cards, and it has already moved into pay by bank, stage one.
“Walmart knows that the reach of instant payments currently is relatively limited. But I think that their making this announcement is going to create some demand at financial institutions for instant payments.”
— Peter Tapling, PTap Advisory
Walmart has been offering pay by bank to online customers of Walmart.com via Fiserv’s NOW Gateway since early 2024, processing the payments through the automated clearinghouse network. The NOW Gateway uses the real-time rails of the vendor, rather than the rails of FedNow and RTP, though that could change. (The Gateway connected to RTP in 2022 and to FedNow in 2023.) In September Walmart and Fiserv conducted a proof-of-concept transaction to test the service that will be rolled out in 2025. The news that Walmart planned to move further, into instant payments via pay-by-bank, came in a recent Bloomberg report. Many details of how the instant payment version will be implemented remain to be spelled out.
Tapling explains his nautical analogy this way: “Walmart knows that the reach of instant payments currently is relatively limited. But I think that their making this announcement is going to create some demand at financial institutions for instant payments. The institutions will look at Walmart and think, ‘If my customer can’t send or receive instant payments, they’re not going to be able to shop at Walmart — and I want them to be able to shop there using my bank account’.” In other words, he thinks choosing not to play with Walmart isn’t a real option.
The concept of “decoupled debit” has been around for years. The decoupling refers to the debit card not transacting via Visa and Mastercard rails. In fact, the decoupled debit card isn’t issued by the customer’s financial institution, but by a retailer to draw on the customer’s bank account. The transaction is processed via the ACH, the consumer having providing relevant account information to the issuer of the decoupled debit card. One example is the Target Red Card debit card. Another is PayPal’s debit account, which pulls value from bank accounts in order to operate.
Richard Crone points out that adding what Walmart has already said it will do online to the Walmart Pay digital wallet would have a similar impact. Putting the pay-by-bank capability inside a “container,” in this case the store’s own mobile wallet, would introduce some anti-fraud measures, such as user authentication via password, biometrics, geographic monitoring and access to Fiserv’s file entries related to the underlying account. (Walmart Pay, part of the Walmart app, doesn’t use near-field communication, instead having the user shoot a QR code at the register. In addition, Walmart Pay’s in-store mode has can only be accessed while in a Walmart store.)
“All those settlement points are brought to bear in order to handle settlement risk,” says Crone. He notes that questions remain on how Walmart and Fiserv will handle fraud control once instant payments become part of the process.
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What Will Get Consumers to Accept Instant Payments at Walmart?
Walmart stands to win big if people really take to pay by bank married to instant payments. But will they?
There’s a generational aspect to answering that question. Some Baby Boomers can recall their parents “playing the float” when money got tight. They’ve also grown used to using credit cards.
Generation Z is a different cohort, says Davey. Many Gen Zers are averse to using credit, preferring to not spend money they don’t have, he says. As a result, they tend to favor debit cards. Pay by bank? Instant payments? Appealing to Gen Z.
“If you can build something into an application that allows instant access to their balance in their bank account, and the ability to move money in reach time for them to accomplish what they could with a debit card, they will leave the debit card in droves,” says Davey. “They are technology-first people.”
Davey acknowledges that many people love credit card rewards, but the real points fans aren’t the whole populace.
“Primarily you are talking about folks who are in the lower-income and middle-income categories who are shopping at Walmart,” says Davey. “It’s not going to take much to convince those folks to spend this way.”
Given its potential savings, Walmart could afford to discount prices by as much as 10% for pay-by-bank instant payment users, suggests Davey. This would be seen as a strong reward among its most loyal customers, he says.
In fact, Davey thinks this approach would especially appeal to small businesses that buy from Walmart and from its warehouse club affiliate Sam’s Club. They would lean towards a payment stream that gave them immediate rewards in the form of discounts, and their spending per account is higher than what households typically spend.
Read more: When Will Mobile Banking Finally Kill the Plastic Credit Card?
Where Will Incentive Bucks Come From?
And let’s not assume that all the incentives will come out of Walmart’s own pockets, says Richard Crone.
Walmart is notorious for extracting special deals from companies that want to sell goods through its channels, and companies spend big to stimulate sales there. One such tool is trade promotion dollars, fees to get better placement on store shelves, for example. Manufacturer pricing deals and more can be pushed through to customers as an incentive to pay by bank instantly, Crone says.
“Walmart has a giant war chest of incentives, promotions and offers that are paid for by consumer packaged goods makers and other suppliers that Walmart can use”
— Richard Crone, Crone Consulting
“So Walmart has a giant war chest of incentives, promotions and offers that are paid for by consumer packaged goods makers and other suppliers that Walmart can use,” Crone says.
Tapling points out that acceptance can take time to build and increasing volume can have a long runway.
“We’re ten years into Apple Pay,” says Tapling, “and even though it is darn convenient, in the U.S. it’s still a small fraction of the total amount of payments that are made here. Again, it’s a change in user experience and you have to get consumers to adapt to that changing experience.”
A little further afield is the idea of incentives for banking institutions that accommodate instant payments. Tapling points out that The Clearing House RTP program includes incentives for receiving banks that must pay out when a customer’s transaction reaches them. At present FedNow doesn’t have a similar fee.
A Word for the Interchange Fee
In a LinkedIn post and a subsequent interview with The Financial Brand, Ron Shevlin, chief research officer at Cornerstone Advisors, poked holes in retailers’ contention that interchange fees, especially on credit cards, are too high.
“The merchants argue that interchange is a swipe fee, which implies that it is a valueless charge,” says Shevlin. He disagrees for multiple reasons.
One point is that issuing credit cards to consumers enables them to buy more than if they were working strictly on a cash (or debit card) basis, says Shevlin. Study after study has supported this, he says. (The point has been made in buy now, pay later firms’ pitches to merchants that that financing method also leads to higher purchasing levels.)
In addition, merchants benefit by not having the costs of processing cash or checks, the latter of which many retailers in recent years have stopped accepting. Shevlin points out that anti-fraud efforts by financial institutions are also paid for in part via interchange fees.
“You can’t expect something for nothing,” Shevlin concludes.
From our research-based “Cheat Sheet” collection: Pay by Bank Is Gathering Steam: How U.S. Banks Can Ride the Wave