New Payment Service Using Same Tech As Zelle And Venmo Will Cut Out Visa And Mastercard Fees

For decades, retailers have protested the fees Visa V -3.3% and Mastercard MA -3.7% charge them to accept credit and debit cards. “Pay by bank” is the latest effort to circumvent those fees by letting people pay directly from their bank accounts. Financial services consulting firm Sionic has partnered with MX, a company that connects fintechs to users’ bank accounts, and Google Cloud Services to launch pay by bank in the United States.

The product lets merchants cut out card acceptance fees, which range from 1% to 3%. Its success in the U.S. depends on whether merchants can incentivize consumers to switch from heavily utilized credit or debit cards. Pay by bank lets consumers bypass Visa and Mastercard’s payment rails and pay directly from their bank account. It’s already popular abroad, particularly in Asia and Europe, but has so far failed to catch on in the U.S. market where 84% of adults have at least one credit card.

While credit and debit cards approach ubiquity in the United States, the card networks are facing scrutiny as interchange fees–charges to merchants to cover the cost of processing transactions–have continued to climb. In 2021, merchants were charged $77.5 billion in credit card fees, which are split between issuing banks and the card networks. In March, Visa and Mastercard were preparing to raise interchange fees even further, the Wall Street Journal reported.

The pay-by-bank product uses the real-time-payments (RTP) network operated by The Clearing House, an organization owned by 23 of the largest banks including Citibank, Wells Fargo WFC -3.1% and HSBC HSBC -1%, with lower fees than the card networks. The Clearing House’s real-time-payments network is also used by Venmo and Zelle to facilitate money transfers. Launched in 2017 in America, RTP aims to speed up bank transfers so they settle instantly – that’s a stark contrast to the days it can take to settle most bank transfers over the ACH network.

“We’re reallocating the control of that merchant-customer relationship away from those expensive rewards credit cards into the hands of the merchants,” CEO and founder of Sionic Ron Herman said. Customers use Sionic’s pay-by-bank option, called ULink, by scanning a QR code at checkout. The option could also appear to consumers as a button within their mobile banking apps. For security, the technology “tokenizes” user account information.

“The merchant never sees the account number for the individual that’s paying because they didn’t present a debit card, they presented a token to the merchant,” says Elizabeth McQuerry, a partner at payments consulting and research firm Glenbrook Partners. With ULink, MX’s technology confirms a customer has the balance available to cover the transaction, and the fund transfer occurs within seconds over the RTP network.

There is no risk merchants will not receive payment or that the customer will overdraft their account. However, once the transaction has occurred, there are fewer options for recourse if there is a dispute. For example, if a consumer orders something online and it never arrives, they will either have to settle the dispute with the merchant or ask their bank to issue a refund.

Card networks have more experience handling fraud and protect customers through things like Visa’s zero liability policy, which requires banks to cover card holders in the event of a fraudulent transaction. “We know Visa is and will remain one of the most cost effective and secure ways to pay and be paid – offering superior functionality and benefits to merchants and consumers at a competitive cost,” a Visa spokesperson said.

Merchants who want customers to use pay by bank will want to handle disputes swiftly, similarly to how Amazon AMZN -4.8% has built customer loyalty through generous refund policies. Merchants eager to accept pay by bank could incentivize consumers to switch over by offering rewards or discounts for using the service. Some merchants are ahead of the curve, offering their own card programs similar to pay by bank.

The Target TGT -4.1% Red Debit card, for example, works by transferring customer funds directly from their bank account to Target’s. In return for using the product, Red Card customers receive up to 5% cash back on their purchases. In addition to avoiding interchange fees, the Red Card gives Target greater control over the customer experience and more access to offer new promotions or products.

Plaid, an MX competitor and one of the most valuable private fintech companies in America, does not currently offer a pay-by-bank service or utilize the RTP network. In 2020, when Visa announced plans to acquire Plaid for $5.3 billion, the Department of Justice blocked it saying that Visa was trying to “eliminate this competitive threat to its online debit business before Plaid had a chance to succeed.”

Visa denied the allegations, claiming that Plaid’s business is “complementary to Visa’s, not competitive.” Mastercard made its move into pay by bank in 2016 by acquiring Vocalink, which offers the service throughout the United Kingdom. Sionic’s product isn’t the first time pay by bank has attempted to gain traction in the United States. In 2014, Merchant Customer Exchange, a payments company owned by a group of big box retailers including Walmart WMT -3.1%, attempted to launch a pay-by-bank product called CurrentC.

The initiative was shut down two years later after failing to gain traction with consumers. Even if merchants are eager to spur adoption, changing consumer payment habits is a slow process, especially when many are accustomed to a quick and simple card experience. It is unclear if Google Cloud Services’ involvement in Sionic’s pay-by-bank product foreshadows bigger plans for the tech giant, since Google has been working on payment technology for over a decade.

Its products have moved through several iterations. In May, Google Pay (a competitor to Apple Pay) was rebranded to Google Wallet. The most recent version is a digital wallet designed to store card information, in addition to tickets or vaccination cards. Last year, the company ditched plans to offer Google Pay users the option to sign up for checking accounts and debit cards through a program called Google Plex.

Given Google Wallet’s history, it wouldn’t be too far a leap for the company to add pay by bank. “The Sionic and MX announcement is likely to be warmly embraced by Google Wallet, which abandoned its own efforts known as Google Cache and Google Plex to provide a direct pay-by-bank option,” CEO and founder of payments firm Crone Consulting, Richard Crone, said.

I cover fintech for the money team at Forbes. I am an NYU graduate with bylines at AMNewYork, Gotham Gazette, and Prague Daily Monitor.

Source: New Payment Service Using Same Tech As Zelle And Venmo Will Cut Out Visa And Mastercard Fees

Related News:

Owner of Chinatown’s Wok Shop defrauded with unauthorized Zelle transactions ABC7 /

10:33 Thu, 25 Aug
22:46 Mon, 22 Aug
15:28 Mon, 22 Aug
05:12 Sat, 20 Aug
19:07 Tue, 16 Aug
07:06 Fri, 12 Aug
05:42 Fri, 05 Aug
06:56 Thu, 04 Aug
15:19 Wed, 03 Aug
18:06 Tue, 02 Aug
22:04 Thu, 28 Jul
17:43 Thu, 28 Jul
Venmo, Cash App and Zelle are handy, but scams happen. Here’s how to keep money safe The Kansas City Star

23:45 Mon, 22 Aug
05:03 Thu, 11 Aug
23:38 Mon, 08 Aug
20:01 Tue, 02 Aug

More Remote Working Apps:

https://givvy-numbers.app.link/qNDZMGGbhsb  Givvy Mobile Lottery

https://quintexcapital.com/?ref=arminham     Quintex Capital

https://www.genesis-mining.com/a/2535466   Genesis Mining

https://www.bybit.com/en-US/invite?ref=ALEXP  Bybit Crypto Trade

 http://www.bevtraders.com/?ref=arminham   BevTraders

https://www.litefinance.com/?uid=929237543  LiteTrading

https://cashbox.money/r/6ded936cbc264c7e9add5dd5565bb31a   Cash Box Money

https://alpariforex.org/fa/registration/?cpa_partner_id=13687690   Alpari Forex Trading

https://dealcheck.io?fp_ref=armin16   Dealcheck Real Estate Evaluator

https://jvz8.com/c/202927/369164  prime stocks

 https://jvz1.com/c/202927/373449  forrk   

https://jvz3.com/c/202927/194909  keysearch  

 https://jvz4.com/c/202927/296191  gluten free   

https://jvz1.com/c/202927/286851  diet fitness diabetes  

https://jvz8.com/c/202927/213027  writing job  

 https://jvz6.com/c/202927/108695  postradamus

https://jvz1.com/c/202927/372094  stoodaio

 https://jvz4.com/c/202927/358049  profile mate  

 https://jvz6.com/c/202927/279944  senuke  

 https://jvz8.com/c/202927/54245   asin   

https://jvz8.com/c/202927/370227  appimize

 https://jvz8.com/c/202927/376524  super backdrop

  https://jvz1.com/c/202927/375487  4brandcommercial

https://jvz2.com/c/202927/375358  talkingfaces

 https://jvz6.com/c/202927/375706  socifeed

 https://jvz2.com/c/202927/184902  gaming jobs

 https://jvz6.com/c/202927/88118   backlinkindexer

 https://jvz1.com/c/202927/376361  powrsuite  

https://jvz3.com/c/202927/370472  tubeserp  

https://jvz4.com/c/202927/343405  PR Rage  

https://jvz6.com/c/202927/371547  design beast  

https://jvz3.com/c/202927/376879  commission smasher

 https://jvz2.com/c/202927/376925  MT4Code System

https://jvz6.com/c/202927/375959  viral dash

https://jvz1.com/c/202927/376527  coursova

 https://jvz4.com/c/202927/144349  fanpage

https://jvz1.com/c/202927/376877  forex expert  

https://jvz6.com/c/202927/374258  appointomatic

https://jvz2.com/c/202927/377003  woocommerce

https://jvz6.com/c/202927/377005  domainname

 https://jvz8.com/c/202927/376842  maxslides

https://jvz8.com/c/202927/376381  ada leadz

https://jvz2.com/c/202927/333637  eyeslick

https://jvz1.com/c/202927/376986  creaitecontentcreator

https://jvz4.com/c/202927/376095  vidcentric

https://jvz1.com/c/202927/374965  studioninja

https://jvz6.com/c/202927/374934  marketingblocks

https://jvz3.com/c/202927/372682  clipsreel  

https://jvz2.com/c/202927/372916  VideoEnginePro

https://jvz1.com/c/202927/144577  BarclaysForexExpert

https://jvz8.com/c/202927/370806  Clientfinda

https://jvz3.com/c/202927/375550  Talkingfaces

https://jvz1.com/c/202927/370769  IMSyndicator

https://jvz6.com/c/202927/283867  SqribbleEbook

https://jvz8.com/c/202927/376524  superbackdrop

https://jvz8.com/c/202927/376849  VirtualReel

https://jvz2.com/c/202927/369837  MarketPresso

https://jvz1.com/c/202927/342854  voiceBuddy

https://jvz6.com/c/202927/377211  tubeTargeter

https://jvz6.com/c/202927/377557  InstantWebsiteBundle

https://jvz6.com/c/202927/368736  soronity

https://jvz2.com/c/202927/337292  DFY Suite 3.0 Agency+ information

https://jvz8.com/c/202927/291061  VideoRobot Enterprise

https://jvz8.com/c/202927/327447  Klippyo Kreators

https://jvz8.com/c/202927/324615  ChatterPal Commercial

https://jvz8.com/c/202927/299907  WP GDPR Fix Elite Unltd Sites

https://jvz8.com/c/202927/328172  EngagerMate

https://jvz3.com/c/202927/342585  VidSnatcher Commercial

https://jvz3.com/c/202927/292919  myMailIt

https://jvz3.com/c/202927/320972  Storymate Luxury Edition

https://jvz2.com/c/202927/320466  iTraffic X – Platinum Edition

https://jvz2.com/c/202927/330783  Content Gorilla One-time

https://jvz2.com/c/202927/301402  Push Button Traffic 3.0 – Brand New

https://jvz2.com/c/202927/321987  SociCake Commercial

https://jvz2.com/c/202927/289944  The Internet Marketing

 https://jvz2.com/c/202927/297271  Designa Suite License

https://jvz2.com/c/202927/310335  XFUNNELS FE Commercial 

https://jvz2.com/c/202927/291955  ShopABot

https://jvz2.com/c/202927/312692  Inboxr

https://jvz2.com/c/202927/343635  MediaCloudPro 2.0 – Agency

 https://jvz2.com/c/202927/353558  MyTrafficJacker 2.0 Pro+

https://jvz2.com/c/202927/365061  AIWA Commercial

https://jvz2.com/c/202927/357201  Toon Video Maker Premium

https://jvz2.com/c/202927/351754  Steven Alvey’s Signature Series

https://jvz2.com/c/202927/344541  Fade To Black

https://jvz2.com/c/202927/290487  Adsense Machine

https://jvz2.com/c/202927/315596  Diddly Pay’s DLCM DFY Club

https://jvz2.com/c/202927/355249  CourseReel Professional

https://jvz2.com/c/202927/309649  SociJam System

https://jvz2.com/c/202927/263380  360Apps Certification

 https://jvz2.com/c/202927/359468  LocalAgencyBox

https://jvz2.com/c/202927/377557  Instant Website Bundle                                        

https://jvz2.com/c/202927/377194  GMB Magic Content

https://jvz2.com/c/202927/376962  PlayerNeos VR

https://jvz8.com/c/202927/381812/  BrandElevate Bundle information

https://jvz4.com/c/202927/381807/ BrandElevate Ultimate

https://jvz2.com/c/202927/381556/ WowBackgraounds Plus

https://jvz4.com/c/202927/381689/  Your3DPal Ultimate

https://jvz2.com/c/202927/380877/  BigAudio Club Fast Pass

https://jvz3.com/c/202927/379998/ Podcast Masterclass

https://jvz3.com/c/202927/366537/  VideoGameSuite Exclusive

https://jvz8.com/c/202927/381148/ AffiliateMatic

https://jvzoo.com/c/202927/381179  YTSuite Advanced

https://jvz1.com/c/202927/381749/  Xinemax 2.0 Commercial

https://jvzoo.com/c/202927/382455  Living An Intentional Life

https://jvzoo.com/c/202927/381812  BrandElevate Bundle

https://jvzoo.com/c/202927/381935 Ezy MultiStores

https://jvz2.com/c/202927/381194/  DFY Suite 4.0 Agency

https://jvzoo.com/c/202927/381761  ReVideo

https://jvz4.com/c/202927/381976/  AppOwls Bundle

https://jvz8.com/c/202927/381950/  TrafficForU

https://jvz3.com/c/202927/381615/  WOW Backgrounds 2.0

https://jvz4.com/c/202927/381560   ALL-in-One HD Stock Bundle

https://jvz6.com/c/202927/382326/   Viddeyo Bundle

https://jvz8.com/c/202927/381617/  The Forex Joustar

https://jvz3.com/c/202927/383751/ ADA Web Accessibility Compliance 

https://jvz3.com/c/202927/383942/  10 Bold Actions In Positive Life & Work

https://jvz3.com/c/202927/383706/  Adtivate Agency

https://jvz1.com/c/202927/384099/   My Passive Income Blueprints

https://jvz3.com/c/202927/329145/  Content Tool Kit

https://jvz6.com/c/202927/382663/    ReviewReel

https://jvz3.com/c/202927/383865/     QR Verse Bundle

https://jvz4.com/c/202927/379307/    VIADZ Ad Template

https://jvz2.com/c/202927/383051/    EngageYard Ad Creator

https://jvz4.com/c/202927/381011/   Videevolve

https://jvz4.com/c/202927/383751/  Local Leader Bundle

https://jvz8.com/c/202927/383119/   Tonai Voice Content

https://jvz2.com/c/202927/383848/   Vocalic Commercial

https://jvz3.com/c/202927/383483/  Dropshiply Store Creator

https://jvz6.com/c/202927/384025/  Levidio Royal Podcasting

https://jvz6.com/c/202927/383094/  Develop Self Empowerment

https://jvz1.com/c/202927/379223/   Hostley Domain Creator

https://jvz6.com/c/202927/383447/   Mech Forex Robot

https://jvz4.com/c/202927/383177/   Motion Kingdom Studio

https://jvz8.com/c/202927/144577/   Forex Blizz Trading

https://jvz3.com/c/202927/382851/  AdRaven

https://jvz2.com/c/202927/383307/   Animaxime V2

https://jvz8.com/c/202927/375692/  Promovidz Promotion Videos

https://jvz3.com/c/202927/381148/  AffiliateMatic

https://jvz4.com/c/202927/379051/  CanvaKitz Business Templates

https://jvz1.com/c/202927/383113/  Agencyscale Business Agency

https://jvz3.com/c/202927/347847/  Pitchdeck Professional Presentations

https://jvz2.com/c/202927/381179/   YTSuite YouTube Ads Campaigns

https://jvz8.com/c/202927/382455/     Living an International Life

https://jvz1.com/c/202927/188236/    Galactic Dimension backgrounds

https://jvz6.com/c/202927/381749/    Xinemax Hollywood Creator

https://jvz3.com/c/202927/381194/   DFY Suite 4.0 Agency

https://jvz4.com/c/202927/381231/    Appowls Mobile Apps

https://jvz1.com/c/202927/381935/   Ezy Multi Stores

https://jvz3.com/c/202927/381950/  TrafficForU

https://jvz2.com/c/202927/381556/  WOW Backgrounds

https://jvz2.com/c/202927/381685/   Your 3DPal

https://jvz6.com/c/202927/381617/   Forex Joustar

https://jvz2.com/c/202927/381129/   Ultrafunnels A.I

https://jvz3.com/c/202927/128215/   DUX Forex Signals

https://jvz3.com/c/202927/381003/   Trendio Keyword Content

https://jvz1.com/c/202927/381439/  FX Goldminer

https://jvz2.com/c/202927/380937/  Linkomatic

https://jvz2.com/c/202927/378775/  Pixal 2.022

https://jvz1.com/c/202927/379983/   VidVoicer

https://jvz6.com/c/202927/380087/   Big Audio Club

https://jvz1.com/c/202927/379995/  Podcast Advantage

https://jvz8.com/c/202927/380159/  Reputor

https://jvz6.com/c/202927/379863/  TubePal

https://jvz4.com/c/202927/380543/  Local Sites

https://jvz1.com/c/202927/369500/   PodKastr Commercial

https://jvz6.com/c/202927/351606/ Insta Keyword

https://jvz1.com/c/202927/376325/   Facedrip

https://jvz8.com/c/202927/374505/  7 Minutes Kit

https://jvz6.com/c/202927/383057/  Aweber Crash Course

https://jvz3.com/c/202927/46987/   WP Simulator

https://jvz8.com/c/202927/379995/  Podcast Advantage

https://jvz2.com/c/202927/380692/  Boost Optimism

https://jvz1.com/c/202927/36517/   PlanB Muscle Growth

https://jvz6.com/c/202927/379480/  TV Boss Fire

https://jvz1.com/c/202927/379455/  Webprimo Website Builder

https://jvz2.com/c/202927/379339/  LocalCentric

https://jvz4.com/c/202927/378683/  WebCop

https://jvz3.com/c/202927/384619/  Agency Client Finder

https://jvz8.com/c/202927/384625/  Power Reviews

https://jvz8.com/c/202927/380933/   Survai

https://jvz2.com/c/202927/378775/  Pixal

https://jvz3.com/c/202927/383937/  Webinarkit

https://jvz2.com/c/202927/384700/  YoDrive

https://jvz4.com/c/202927/353373/  Rewriter

https://jvz1.com/c/202927/384630/  Appoint B Agency

https://jvz1.com/c/202927/267113/   Sunday Freebie

https://jvz2.com/c/202927/384573/  EBook Agency

https://jvz2.com/c/202927/75989/  Ejaculation Total

https://jvz3.com/c/202927/359081/  Quit Smoking

https://jvz2.com/c/202927/353694/  Mobi First

https://jvz3.com/c/202927/378143/   Syndranker

https://jvz6.com/c/202927/378359/    VidMingo

https://jvz6.com/c/202927/384848/     Heal Your Emptiness

https://jvz6.com/c/202927/384381/     RSI SEO

https://jvz4.com/c/202927/382333/   Facebook Cash Machin

https://jvz3.com/c/202927/184902/   Video Games

https://jvz2.com/c/202927/383555/  KoinCart

https://jvz2.com/c/202927/358870/  Diabetes Guide

https://jvz4.com/c/202927/353334/  Fitness Nutrition Guide

https://jvz8.com/c/202927/366872/  Organic Life Guide

https://jvz8.com/c/202927/367353/   Human Synthesys Studio

https://jvz8.com/c/202927/384653/   9 figure Success

https://jvz8.com/c/202927/383809/   Crypto Kit

https://jvz2.com/c/202927/366972/   AdzHero

https://jvz1.com/c/202927/385046/   Stackable Picture

https://jvz8.com/c/202927/25069/   Forex Atlatian

https://jvz6.com/c/202927/132677/  Forex Scouts

https://jvz6.com/c/202927/378113/   Crypto Rocket

https://jvz4.com/c/202927/377665/   PigMoney Method

https://jvz8.com/c/202927/374345/   Crypto Underworld

https://jvz3.com/c/202927/372305/  XBrain Forex

https://jvz6.com/c/202927/385213/  Pixivid

https://jvz2.com/c/202927/383888/   Seniors Income

https://jvz4.com/c/202927/381768/    FaceSwap

https://jvz4.com/c/202927/383111/   AgencyScale

https://jvz4.com/c/202927/382796/   Ad Raven

https://jvz2.com/c/202927/324492/   Graphic Alta

https://jvz4.com/c/202927/382425/  Art Of Living

https://jvz8.com/c/202927/377815/  Credit Repair

https://jvz6.com/c/202927/381337/  DFY Content Club

https://jvz6.com/c/202927/381689/  3D Pal Toons

https://jvz6.com/c/202927/380385/  Movid Animation

https://jvz8.com/c/202927/379244/  Extreme Adz

https://jvz6.com/c/202927/379020  Live Your Truth

https://jvz3.com/c/202927/47481/  Forex Blue Stark

https://jvz2.com/c/202927/144621/  Forex Mastery

https://jvz2.com/c/202927/144621/  Forex Mastery

https://jvz6.com/c/202927/95037/  Forex Hybrid Scalper

https://jvz4.com/c/202927/384759/  CourseAlly eLearning

https://jvz2.com/c/202927/385180/   EZ Local Appointment

https://jvz2.com/c/202927/380197/  Mat1 Simple Funnel

https://jvz4.com/c/202927/373207/  Photokit

https://jvz4.com/c/202927/384755/   HostLegends

https://jvz6.com/c/202927/377907/   AIWA22

https://jvz6.com/c/202927/363237/   ImageX

https://jvz1.com/c/202927/385357/     SocialAgency360

https://jvz6.com/c/202927/355256/    CourseReel

https://jvz2.com/c/202927/370705/    NichBox

https://jvz1.com/c/202927/386249/  WordPress Mastery

https://jvz2.com/c/202927/385468/  PicsAds

https://jvz4.com/c/202927/371095/   Next Drive

https://jvz6.com/c/202927/385873/   LinkableDFY

https://jvz3.com/c/202927/385580/    Leadvalet

https://jvz4.com/c/202927/385754/    Vidzura

 

 

 

With Fraud Growing, Robinhood Becomes Latest Fintech To Block Customers From Transferring Money From Certain Banks

Fraud is a growing issue for fintech companies, as bad actors are doing everything from stealing identities to exploiting the slow U.S. bank-to-bank transfer network to siphon off money. The problem has gotten so bad that some fintechs, including investment service Betterment and digital banks HMBradley and One, have temporarily banned transfers from other digital banks for fear of being on the hook for a fraudulent transaction.

Forbes has learned that Robinhood, the dominant free stock trading app with 22 million active users, has become the latest fintech to ban transfers from a specific list of institutions as a blunt tool for fighting fraud. In a statement to Forbes, a spokesperson confirmed: “Robinhood prevents transfers from routing numbers that display a high pattern of return and fraud rates.” (Routing numbers are the bank identification numbers used by the bank-to-bank transfer system in America.)

“It is a standard practice to prevent transfers from institutions that are sources of sustained levels of fraudulent activity, whether digital banks or traditional banks,” the statement continues. “When Robinhood and other financial institutions take the step to prevent transfers from a particular routing number, it’s because the fraud problem originates at that institution.”

Robinhood declined to disclose the specific institutions on the list, but Forbes has learned that it contains a wide variety of banks, including a heavy concentration of neobanks and the moderate-sized banks they partner with, plus a small number of large, traditional brick-and-mortar institutions. Some of the names on the list include:

LendingClub; Ohio-based Sutton Bank (one of the partner banks that Square’s Cash App uses to store customer deposits); Tennessee-based First Century Bank (one of the partner banks for PayPal’s Cash Card); prepaid card issuer and digital bank Green Dot; New York-based Metropolitan Commercial Bank (the partner bank for digital bank Current); and Iowa-based Lincoln Savings Bank (one of the partner banks for fintech apps such as Cash App and Acorns). Pittsburgh-based PNC Bank–the nation’s seventh largest bank by assets–and its recent acquisition BBVA USA are also on Robinhood’s banned list, Forbes has been told.

LendingClub, First Century Bank, Green Dot and Metropolitan Commercial Bank didn’t respond to Forbes’ requests for comment. A Sutton Bank spokesperson says, “the fraud rates we experience across our programs are in line with or below industry averages” and that ACH returns (when a transaction fails because the customer doesn’t have enough funds in his or her account) are more likely the culprit. PayPal says it has never had an integration with Robinhood. Lincoln Savings Bank says it has no knowledge of such a ban, and that it hasn’t heard any complaints from customers. PNC also says it found no evidence of Robinhood’s ban.

The slow speed of America’s bank-to-bank transfer network makes certain types of fraud possible. Since transactions can take days to settle, people can move money from one account to another and then withdraw the same funds from both accounts while a transfer is in process–that’s why some fintechs are afraid to accept transfers.

Many financial institutions have lists of banks whose customer deposits they view as higher risk, and they apply extra scrutiny to transactions with those institutions. But outright bans on transfers are unusual and reflect the difficulty some fintechs have had controlling fraud.

Robinhood’s ban comes as it grapples with a variety of troubling security issues. In early November, the brokerage disclosed a breach that exposed personal data of roughly seven million users to hackers that demanded an extortion payment from the company. (Robinhood wrote in a blog post that it “contained” the hack, and said there was “no financial loss to any customers” as a result of the incident.)

And this summer, Robinhood reported that its provision for credit losses for the first half of the year surged 54%, largely due to increased fraudulent activity. Tommy Nicholas first encountered Robinhood’s ban last month when he tried to move money from his personal digital bank account (he declined to say where) to Robinhood.

The brokerage app abruptly rejected it, even though he had been moving funds between the two institutions without issue for three years. This naturally piqued Nicholas’ interest, since he’s the cofounder and CEO of Alloy, a startup whose software helps fintechs to prevent fraud and to comply with “know-your-customer” regulations (aimed at controlling money laundering, tax evasion and other illicit activity).

“Banks and fintech companies are banning deposits and transfers from fintech companies at a rate I’ve never seen before,” Nicholas tweeted after the experience. A wide range of factors have contributed to the problem fintechs are now having controlling fraud. One is that startups aim to have a “frictionless” signup process, where it’s quick and easy to join, making them a tempting target for scammers.

Another is that fraud is on the rise everywhere—fraud attempts on merchants rose 140% in 2021 compared with 2019, according to LexisNexis. Nicholas thinks one of the biggest causes of digital banks’ outsized fraud problem is simply their young age. Since they’re new and fast-growing, they have a larger concentration of new customers. And at any financial institution, new customers have a higher propensity to commit fraud than long-standing ones.

In early December, Forbes reported on merchants like Avis and Holiday Inn rejecting digital bank cards over fraud concerns, but fintechs blocking each other presents a different and potentially bigger challenge. So far, the total amount of transfers being blocked by fintechs isn’t large, Nicholas says. And a Robinhood spokesperson says that only a “single-digit percentage” of its users have been affected by its fraud-prevention bans—which means up to 2 million customers could encounter the block.

Yet if the practice continues to spread, digital banks’ brands could well suffer, as consumers won’t want to rely on a banking service that isn’t accepted by other apps for money transfers. In a blog post describing the challenges for fintechs, Nicholas writes: “The calculation used to be customer acquisition cost vs. lifetime value vs. fraud risk. Now, your institution’s reputation at the network level determines what your users can and can’t do. It’s no longer in each institution’s control.”

If bans between digital banks become common and long-lasting, all the startups could suffer, Nicholas says. That, he warns, could tilt the playing field further in incumbents’ favor and discourage entrepreneurs from starting new neobanks. “Fewer fintech companies means less innovation and less competition, which negatively affects the consumer, especially those underbanked or niche populations who may want something that traditional banking institutions aren’t providing,” Nicholas writes.

For example, Chime has attracted millions of customers partly because people can use it like a regular bank. It has helped lower-income Americans avoid monthly and overdraft fees and has pushed the entire banking industry to reduce or remove fees, with Capital One being the latest established bank to eliminate overdraft fees.

If blanket bans aren’t the right approach, what is? Nicholas believes companies can do more to identify each specific type of fraud they see–there are many ever-changing varieties–and deploy custom tactics to combat each one, such as requiring users to submit more documentation or a valid phone number to complete a transaction.

He also thinks fintechs need to collaborate more: “We all win by lowering the fraud risk of the entire ecosystem, but the growth mindset of the last five to ten years has lacked the incentives for deep collaboration at almost all levels. There are efforts underway to correct some of this, but I think more needs to be done.”

12/20/21: Updated to include comment from PNC.

I lead our fintech coverage at Forbes and also cover crypto. I edit our annual Fintech 50 list and 30 Under 30 list for fintech, and I’ve written frequently about leadership and corporate diversity. Before Forbes, I worked for ten years in marketing consulting, in roles ranging from client consulting to talent management. I’m a graduate of Middlebury College and Columbia Journalism School. Have a tip, question or comment? Email me jkauflin@forbes.com or send tips securely here: https://www.forbes.com/tips/. Follow me on Twitter @jeffkauflin. Disclosure: I own some bitcoin and ether.

I’m a reporter on Forbes’ wealth team covering the world’s richest people and tracking their fortunes. I was previously an assistant editor for Forbes’ Money & Markets section, and I worked for Bloomberg and Pitchbook News before that. I studied history and economics at the University of Virginia, where I also wrote for the student paper and a very secretive underground satire magazine.

Source: With Fraud Growing, Robinhood Becomes Latest Fintech To Block Customers From Transferring Money From Certain Banks

.

More contents:

Crypto And Digital Asset Platform Bakkt Releases First Earnings, Lays Out Bold Partnership Strategy To Growth

Today Bakkt, a mobile wallet provider and digital asset platform founded in 2018 released its first earnings as a public company. The firm began trading on the New York Stock Exchange (NYSE) on October 18th following a SPAC merger with VPC Impact Acquisition Holdings (VIH).

Casual observers may find the results underwhelming. After all, the company, whose backers include NYSE parent firm Intercontinental Exchange, and which had completed a $300 million Series B round of funding in March 2020 brought in just $9.1 million in revenue this quarter.

Granted it is up 7% from Q2 and 38% year over year, and the company reports having 1.7 million transacting accounts, but the firm still had a net loss of $28.8 million. In contrast, cryptocurrency exchange Coinbase earned $1.2 billion in revenue and Square’s Cash App, which offers an easy way for users to buy bitcoin, brought in $1.87 billion in crypto revenue and $42 million in gross profit. PayPal, which offers a simple interface for users to buy and make purchases with Bitcoin, Ethereum, Litecoin, and Bitcoin cash opened 13.3 million accounts last quarter despite disappointing revenues.

However, according to Bakkt CEO Gavin Michael, who spoke exclusively to Forbes prior to the earnings release, this is all part of his plan for the company that has evolved from primarily being a bitcoin custodian and futures exchange to a much more comprehensive platform. Michael, who previously served as a technology executive for banks such as Citi, JPMorgan and Lloyds, intends for Bakkt to become the hub of an extensive ecosystem of business to business and consumer retail activity, with loyalty points and digital assets such as Bitcoin and Ethereum in the center of it all.

“We see businesses leveraging our platform to drive loyalty, and to deepen their customer relationships…they’re also able to innovate with crypto services and crypto rewards, appealing to a growing segment of digitally savvy customers.”The company’s merger also brought in a war chest of more than $480 million to use for future partnerships and acquisitions.

Also not reflected in these numbers is the steady stream of brand-name partnerships brought onto the platform, starting with Starbucks this past March and growing to include Choice Hotels, Fiserv, Finastra, Wells Fargo, United Airlines and Mastercard. These tie-ups are intended to do everything from helping community banks and credit union clients invest in crypto to allow merchants on the Mastercard network to offer crypto rewards to users.

“We enable these companies to really deliver consumer choice, [offer] convenience with alternate payment methods that allow consumers to spend the value of their digital assets across merchants and enable businesses to gain access to this increased spending power.”

The market responded particularly well to the MasterCard partnership, announced on October 25th. The firm’s stock rose 400% in a week. It has since surrendered over half of those gains, but it remains up over 160% since the merger was finalized.

In addition, the firm is looking to onboard more digital assets, though Michael says that given the platform’s comparatively conservative nature compared to traditional cryptocurrency exchanges,  “It’s fair to say that we are probably a platform that will have several, rather than several 100.” Regarding stablecoins and central bank digital currencies (CBDCs), which are increasingly becoming a focal point for regulators and entwined in global commerce and trading, Michael noted “We’re obviously watching closely what happens with stablecoins and CBDCs, because we’re an obvious choice, particularly with the partners that we’re working with…to really bring them to life.” Bakkt does not support any at this time.

With those integrations likely to wait until 2022 at the earliest, Q4 is shaping up to be an early test for Bakkt’s future. Unlike exchanges such as Coinbase, whose fortunes are highly dependent on the volatile nature of cryptocurrency prices to drive trading fees, Bakkt is more dependent upon retail spending to facilitate user growth and engagement on the platform. Q42020 was its most lucrative from a revenue standpoint in the company’s brief history, which Michael attributed in the interview to the seasonality of retail commercial activity, stating that he expects a similar trend again this year.

However, this trend could be upended, to some degree, by today’s challenging economic climate. Already retail establishments are reporting issues finding temporary staff for the holiday season, and October’s inflation numbers, which saw a 6.2% increase from a year ago, the highest jump in 31 years, may limit customer purchasing power over the next couple of months. More worrying is a growing belief among consumers and policymakers that inflation remains stickier than they would like, even if they still believe it is transitory.

That said, the silver lining could be that two industry segments not experiencing massive inflation are travel and lodging, which Bakkt supports through its partnerships with United Airlines and Choice Hotels. Airline fares actually fell 0.7% on the month and is down 4.6% year on year. The index for lodging away from home increased just 1.4%. As more of the world becomes vaccinated, travel restrictions loosen, and cross-border commerce recovers to pre-pandemic levels, Bakkt could see more engagement with its platform.

One final challenge will be convincing clients to part with their bitcoin and ethereum in exchange for goods and services. Both cryptocurrencies, which each hit new all-time highs on November 10th of $68,721 and $4,851 respectively, are seeing reductions in their circulating supply.

This trend is due to multiple factors, pre-eminent among them is the fear of someone finding in the future that they bought a $1000 cup of coffee in 2021 when they needed a quick boost. Of course, when asked about this challenge, Michael and the team are quick to point out that Bakkt is not necessarily a crypto platform, but a universal ecosystem for all digital assets.

Follow me on Twitter or LinkedIn. Check out my website. Send me a secure tip.

I am director of research for digital assets at Forbes. I was recently the Social Media/Copy Lead at Kraken, a cryptocurrency exchange based in the United States. Before joining Kraken I

Source: Crypto And Digital Asset Platform Bakkt Releases First Earnings, Lays Out Bold Partnership Strategy To Growth

.

Related Contents:

 

Braze Begins The IPO Process Amid Pandemic-Era Growth In Digital Marketing

A decade after its founding, the marketing tech startup Braze is beginning the process of becoming a publicly traded company.

Today, the New York-based company filed its Form S-1 with the U.S. Securities and Exchange Commission to go public on the Nasdaq stock exchange under the ticker symbol “BRZE.” Braze is part of the growing industry of marketing campaign management software companies, a market sector that the research group IDC says could reach $15 billion in 2021 and $19.4 billion in 2024.

The customer engagement company provides technology for brands to interact directly with consumers through various channels. By using Braze’s platform, companies can use data from email, apps and other digital platforms to better understand their customers before targeting them with personalized messages. Well known brands that use Braze for their marketing include Burger King, Anthropologie, Birchbox, Grubhub, IBM, Hinge, Nascar, PayPal, HBO, iHeartRadio, Sephora and Rosetta Stone.

According to its SEC filing, Braze reported large revenue growth in the past two years with $150.2 million in fiscal-year 2021 and $96.4 million in 2020. While the company has experienced momentum in 2020 and 2021, it’s still not profitable: Net losses totaled $31.43 million in 2021 and $31.36 million in 2020. Braze also reported annual recurring revenue passing $200 million in 2021, up from $100 million in 2019.

When Braze was cofounded in 2011 by CEO Bill Magnuson, Jon Hyman and Mark Ghermezian, it wanted to build a business that was mobile-first to help companies adapt to changing consumer behaviors. At the time of publication, the company was unavailable for comment about its IPO plans, but in a letter included in the S-1 Magnuson wrote that the “goal was to build a company that would capitalize on new technology to help the world’s best companies grow by trusting us with their most valuable asset: their customer relationships.”

“While technological change drove us forward, we knew that humanity should always guide us,” Magnuson wrote. “Great human relationships are built on mutual understanding, engaging communication and shared experience. It’s thus no surprise that the secret weapon of exceptional, enduring companies is the quality of their customer engagement.”

In the past two years, Braze has continued to grow its customer base from 728 in January 2020 to 890 January 2021 and 1,119 as of July 2021. The company has also continued to scale its cloud-based platform and now reaches 3.3 billion monthly active users through its customers’ applications, websites and other digital platforms—up from 2.3 billion in January 2020 and from 1.6 billion in January 2019.

Issues around privacy are also something Braze listed as a risk factor, citing international, federal and state regulations including newly passed legislation in California, Virginia and Colorado and existing laws such as the European Union’s General Data Protection Regulation. Several pages of the S-1 detail many of the laws and provide a glimpse into the various ways rules around data privacy could impact the company both legally and financially.“The laws are not consistent, and compliance in the event of a widespread data breach could be costly,” according to the SEC filing. “In addition, while we contractually limit the types of data our customers may process and store using our platform, we cannot fully control the actions of our customers. The failure of customers to comply with their contractual obligations may subject us to liability, and we may not have sufficient recourse to cover our related liabilities.”

Braze’s S-1 filing comes just a day after the advertising technology company Basis Globally Technologies—formerly known as Centro—confidentially filed its own S-1 with the SEC, further adding to the string of ad-tech and mar-tech IPOs that have taken place this year. Companies that have either gone public or begun the IPO process in 2021 include the content recommendation company Taboola, ad measurement firms DoubleVerify and Integral Ad Science and other marketing tech companies such as Zeta Global and Sprinklr.

Over the past decade, Braze has raised $175.1 million, according to Crunchbase. It raised an $80 million Series E round led by Meritech Capital Partners in 2018, just a year after raising a $50 million Series D round led by ICONIQ Capital. Other investors have included Battery Ventures, InterWest Partners, Rally Ventures and Blumberg Capital.

While Braze was growing quickly even before the Covid-19 crisis began, the company said the pandemic has accelerated the adoption of digital and mobile usage. Braze is also betting on the increased reliance on first-party data, especially as companies adapt to finding ways to reach people without as much third-party aggregated data.

“Modern brands know that when a customer is intermediated by a third-party aggregator, ad platform or distribution channel, it’s not really their customer relationship,” Magnuson wrote. “The highest value customer relationships are informed by first-party data and cemented through direct engagement.”

Follow me on Twitter or LinkedIn. Send me a secure tip.

I’m a Forbes staff writer and editor of the Forbes CMO Network, leading coverage of marketing and advertising especially related to the ever-evolving role of chief

Source: Braze Begins The IPO Process Amid Pandemic-Era Growth In Digital Marketing

.
Related Contents:

LinkedIn Co-Founder Reid Hoffman on ‘Blitzscaling’ and Unintended Consequences

“You can’t anticipate everything. You can’t prep for everything,” said LinkedIn co-founder and former CEO Reid Hoffman during an interview Thursday at the 2021 Inc. 5000 Vision Conference. Entrepreneurship, he adds, is like “running really fast through the fog,” so the best thing you can do is equip yourself with learned wisdom from others who have been down the path before you.

Hoffman, who today is a partner at the venture capital firm Greylock, has had a hand in many fast-growth companies that have achieved enormous scale. In addition to LinkedIn, he was a top executive at PayPal, along with Peter Thiel, Elon Musk, and others who’ve gone on to become household names. And he’s been an investor in Facebook and Airbnb, among others.

Hoffman also is a three-time bestselling author whose newest book, Masters of Scale: Surprising Truths From the World’s Most Successful Entrepreneurs, which he co-wrote with June Cohen and Deron Triff, builds on the success of their podcast by the same name. Both the podcast and the book feature stories and lessons drawn from deep interviews with dozens of famous founders, along with tales from Hoffman’s own career. In short: Few people understand the art of scaling a business better than Hoffman.

In his conference appearance, Hoffman highlighted a few of the top takeaways from the new book and discussed the ethics of Silicon Valley-style blitzscaling at a moment when the type of tech giants he has helped create have come under increasing scrutiny.

Beware unintended consequences

One of the most memorable moments of Hoffman’s presentation came when he addressed the ethical complications that can come when scaling as quickly as possible brings unintended consequences. Especially as a growing organization moves “from single-threaded to multi-threaded,” Hoffman says, it can be hard as a leader to both maintain the speed to scale and keep on top of all the new threads–let alone anticipate all potential scenarios.

He recommends hiring “somebody whose responsibility is to say, ‘What could possibly go wrong? What would have the wrong impact with our customers or with society, and what are the things we could do now to prep against it?'” Nothing is fail-safe, he cautions, but the more you think ahead, the more nimbly you can respond when necessary–“because if things start going wrong at scale, that can be even more challenging.”

Let some fires burn

As Hoffman knows well, running a fast-growth company can feel like an exercise in constant crisis management. Rather than trying to put out every fire immediately, he advises, establish a triage system that allows you to, in his words, “let some fires burn.” An entrepreneur should ask herself a series of questions: “Which thing is most likely to kill us first, or limit our scale? Which thing, if we don’t start now, won’t be controllable later?”

The answers aren’t always obvious, he points out–some fires, though harder to control later, will be manageable because you’ll have more resources as you grow. “Generally speaking, you have a limited amount of resources to focus on some fires,” he says. “If you try to do them all at the same time, maybe you won’t get any of them sufficiently.”

It all comes back to mission

It’s not enough, Hoffman says, for your company to provide jobs or for people to love your product. “Those are important things, true, but sometimes your product might be questionable–like cigarettes.” So you should also ask, “Why is society better with your product in it?”–and invest in growing that direction.

That isn’t anti-business, he adds, it’s long-term brand building. It builds cohesion and clarifies decision-making in the company. It’s great for attracting talent. “It can be great capitalism. I think it’s really fundamental to great entrepreneurship and helps through the entire company,” he says.

By Tom Foster, Editor-at-large, Inc.@tomfoster2

Source: LinkedIn Co-Founder Reid Hoffman on ‘Blitzscaling’ and Unintended Consequences | Inc.com

.

Related Contents:

%d bloggers like this: