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US Banks Take Aim at Digital Wallets, Plan to Launch Apple Pay Competitor

2 mins
23 January 2023, 19:42 GMT+0000
Updated by Ryan James
23 January 2023, 19:42 GMT+0000
In Brief
  • Crypto payments not on the agenda of several major U.S. banks as they look to offer a digital payments solution.
  • The solution would likely use Early Warning Services to connect to backend infrastructure to check available cards customers can pay with.
  • Banks face significant regulatory hurdles if they choose to accept crypto payments, including establishing a reliable bridge to a crypto exchange.
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Seven U.S. banks plan to launch a new digital wallet to stave off Apple Inc. and PayPal threats.

Several banks, including Wall Street heavy-hitters JPMorgan Chase, Wells Fargo, and Bank of America, are looking to reclaim market share from Apple Inc., whose Apple Pay service has proven extremely popular.

Digital Wallet Must Benefit from Dual Network Effects

According to a report by the Wall Street Journal, the service will likely ask the banks’ customers to enter their email addresses when paying. The merchant would identify eligible consumer cards using infrastructure provided by Early Warning Services, a fintech firm. Customers can load credit and debit cards from Visa and Mastercard.

While cards will be the primary payment method, a postive reception of the wallet could see banks adding other payment options, including direct payments from bank accounts.

However, the wallets could take a long time to gain mainstream adoption, according to analyst Harshita Rawat.

“It simply takes a very long time, a killer customer experience (which needs to be better than incumbents, not just similar), and a compelling merchant value proposition to build the two-sided network effects in payments to achieve scale,” Rawat told CNBC.

Holding Crypto Likely to Present Significant Hurdles

While no mention was made of crypto inclusion, banks face several hurdles if they offer digital currencies in their wallets. They must comply with stringent banking regulations and tailor risk management practices to protect consumer funds and prevent money laundering.

A recent report by the U.S. Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency said that banks with significant crypto exposure would be monitored. The agencies added that they will prevent unmanageable crypto risks from entering the banking sector.

In addition to compliance burdens, banks must decide which cryptocurrencies to offer in their wallet and simplify any technical hurdles to drive mainstream adoption. To accept crypto payments, banks must lock in an exchange rate between crypto and fiat to protect consumers from volatility.

According to crypto payments company BitPay, consumers favored Litecoin for purchases in 2022. Litecoin has lower transaction fees compared to its bigger brother, Bitcoin. In contrast, customers used Bitcoin transactions for larger purchases.

JPMorgan CEO Jamie Dimon maintained in a recent interview at the 2023 World Economic Forum that Bitcoin is “a hyped-up fraud,” disparagingly calling the cryptocurrency “a pet rock.”

Wall Street banks may also avoid the Silvergate Exchange Network due to the institution’s relationship with collapsed exchange FTX.

Silvergate’s network enables funds transfers between the bank accounts of crypto companies and traditional financial institutions. FTX customers apparently wired money to FTX via a Silvergate account belonging to FTX’s market maker Alameda Research.

Customers withdrew $8.1 billion from Silvergate after the FTX implosion, causing the crypto bank to borrow heavily and sell securities to survive. Deposits into Silvergate plummeted 68% in the fourth quarter.

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Disclaimer

In adherence to the Trust Project guidelines, BeInCrypto is committed to unbiased, transparent reporting. This news article aims to provide accurate, timely information. However, readers are advised to verify facts independently and consult with a professional before making any decisions based on this content.

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