A big part of the problem in America is that, rather than route purchases through competing payment pipes, the fintechs still often have little choice but to rely on America’s credit-card networks to connect merchants, banks and consumers. The credit-card firms continue to demand a high rent of roughly 2%. Funds can take days to travel. That reflects the power and entrenched position of Visa and Mastercard. They process 86% of card payments through huge networks linking most shops and firms, which have to sign up to detailed terms and conditions.
You might think that the answer is antitrust action against the credit-card firms. America’s competition watchdogs are growling. Last November the Department of Justice sued to block Visa’s $5.3bn purchase of Plaid after Visa’s boss described it as an “insurance policy” to neutralise a “threat to our important US debit business”. The two firms abandoned the deal. On March 19th the Wall Street Journal reported that the justice department had started a new probe over whether Visa is inhibiting merchants from switching to cheaper services. But do not get your hopes up. The courts, which decide most antitrust cases in America, take ages to act and tend to be too lenient. A big antitrust case against American Express in 2017 flopped.
Instead, the key to making payments more competitive in America is to create a new network of financial plumbing: a “real-time” interbank-payment system allowing for near-instant and cheap transfers. Swathes of Europe and Asia have already done this. Once this exists, banks and fintechs can build products, standards and services on top of it. In Singapore and the Netherlands, for example, those efficient payment pipes are open to digital wallets, which can process payments in a few clicks, taps or by scanning a QR code.
America’s own effort at instant payments, backed by the Federal Reserve and known as FedNow, is to launch in 2023. The big banks and credit-card firms are keen to delay a system that could disrupt the status quo. The government and the Fed should not just ignore their grumbles but bring forward the timetable. The pandemic has shown that online transactions have come of age. It has also shown that the public sector can act quickly and effectively when it has to. Cheap and swift digital payments are a prize that should be viewed as a priority.