It’s why our healthcare is so expensive (a socialized health system<\/a> that masquerades as a free market one, getting the best of neither and the downsides of both).<\/p>\n\n\n\n And why, at least as it relates to this periodical, the incumbent banking system is a shit show.<\/p>\n\n\n\n It took Square four years<\/strong> from its first public attempt to final banking approval, and it kept hitting walls because the FDIC – the bank approval body – received industry pushback from community banks and banking trade groups, arguing that letting a tech company run an ILC (industrial loan company) would create unfair competition and regulatory loopholes.<\/p>\n\n\n\n Uh yea, that’s how innovation happens, morons. <\/strong><\/p>\n\n\n\n Uber had to break a ton of nonsensical “rules<\/a>” but when was the last time you suffered through a taxi trip?<\/p>\n\n\n\n You’re welcome. <\/strong><\/p>\n\n\n\n Here’s an example of how dumb rules are:<\/p>\n\n\n\n It’s 3 AM. <\/p>\n\n\n\n You’ve been shot in your left leg.<\/p>\n\n\n\n You climb into your car to drive yourself to the emergency room.<\/p>\n\n\n\n And the stoplight turns red. <\/p>\n\n\n\n No other cars are on the road. <\/p>\n\n\n\n If you follow the rules, you’ll bleed out in the car.<\/p>\n\n\n\n Rules exist to box people in cages and treat them like imbeciles.<\/strong><\/p>\n\n\n\n If you’re a free thinker, you don’t need rules.<\/p>\n\n\n\n Most people, unfortunately, are incapable of critical thinking… but that’s actually not why rules exist.<\/p>\n\n\n\n Rules exist so elected officials can pander to their special-interest base and remain in power. <\/p>\n\n\n\n The special interest group wants something that they cannot achieve on their own in the free market, so they seek legislators to act on their behalf.<\/p>\n\n\n\n The US banking system is a poster child for these problems.<\/strong><\/p>\n\n\n\n Look no further than credit card payments, a slice of the banking underbelly which are a massive tax on the US (and global) economy. <\/p>\n\n\n\n And in total irony, the oligarchs that benefit the most from payment racketeering openly violate their own “rules” <\/a>because they know that they’re the most wealthy special interest of them all, buying a blind eye from legislators. <\/p>\n\n\n\n While third world countries<\/a> have modernized with free, instant payment infrastructure<\/a>, the US is held back by crony legislators suckling at the teet of incumbent payment oligarchs.<\/p>\n\n\n\n Slowly, however, large US retailers have pushed back.<\/p>\n\n\n\n In 2007 the retailer Target launched the Redcard<\/a>, a loyalty program for Target shoppers. As the card matured it connected directly to shoppers’ bank accounts and added a 5% discount for doing so. <\/p>\n\n\n\n Today Redcard has expanded as a cobranded Mastercard credit card, allowing Target shopper to accrue points outside of Target, but in its original embodiment it was a cash discount: connect your bank account and get 5% cash back on Target purchases.<\/p>\n\n\n\n Specs, a ~$2B chain of liquor stores, offers a 5% cash discount.<\/p>\n\n\n Online jewelry retailer Blue Nile offers a 1.5% cash discount.<\/p>\n\n\n Just about every international airline explicitly surcharges credit cards, too.<\/p>\n\n\n\n No, seriously:<\/p>\n\n\n\n There are two reasons surcharges are employed more than cash discounts.<\/p>\n\n\n\n First, some consumers lack the necessary bank balance to make purchases outright. <\/p>\n\n\n\n They need financing, even if it costs 30% APR from their bank.<\/p>\n\n\n\n Second, ACH is a slow, antiquated system of funds transfer. It takes at least 24 hours to know if the buyer is good for the funds. Another 2-3 business<\/strong> days to actually receive the funds. <\/p>\n\n\n\n That creates real risk for the retailer.<\/p>\n\n\n\n But surcharging also presents a non-zero risk to the retailer’s reputation.<\/p>\n\n\n\n JD Power<\/a> found that,<\/p>\n\n\n\n …satisfaction with the overall cost of payment processing services among small businesses that implement these credit card surcharges is 24 points lower (on a 1,000-point scale) than among those that do not add a credit card surcharge.<\/p>\n<\/blockquote>\n\n\n\n Yet given the above, there are clear benefits to paying by bank.<\/p>\n\n\n\n First, consumers don’t have to worry about racking up debt, and there are protections that prevent overdrafts and therefore overdraft fees.<\/p>\n\n\n\n Second, adding additional payment modalities reduces cart abandonment: in a PYMNTS survey<\/a>, every single merchant that added pay by bank saw a decrease in cart abandonment. <\/p>\n\n\n\n This was particularly the case for younger generations who prefer more digital payment options. <\/p>\n\n\n\n Third, a Plaid study<\/a> found that consumers were interested in paying by bank.<\/p>\n\n\n Consumers have shown a willingness to pay with their bank accounts. Plaid\u2019s Fintech Effect 2023<\/a> reported that 86% of fintech users see the benefits of pay-by-bank options and are open to using them to purchase. Half of consumers already use pay by bank more often than they use cards, and 67% of consumers are open to using pay by bank, even when paying by card is an option. <\/p>\n<\/blockquote>\n\n\n\n And lastly, merchants hate card payments and are looking for any frictionless alternative that reduces costs:<\/p>\n\n\n Plaid internal research <\/a>found that offering just a 1% discount at checkout for high-value e-commerce purchases increases pay-by-bank adoption from 20% to 67%<\/u><\/a>. <\/p>\n\n\n\n Consumer predilections aside, technology<\/a> for real time bank-to-bank payments has also been NOMINALLY released, which if were made available as described it would reduce the real concerns of fraud, or funding delays for pay-by-bank.<\/p>\n\n\n\n Sensibly, large retailers are starting to roll out pay-by-bank in some form, including Walmart<\/a> and Kroger<\/a>.<\/p>\n\n\n\n The real economics question, however, is how will large retailers incentivize pay by bank?<\/p>\n\n\n\n The wars for consumer wallet share are heating up.<\/p>\n\n\n\n Robinhood’s gold card<\/a> offers 3% cash back on every<\/em> purchase for a token $50 annual fee.<\/p>\n\n\n\n Coinbase offers a 4% bitcoin back<\/a> on every purchase for $50 a year with a $200,000 account balance.<\/p>\n\n\n\n A large number of consumers are not going to pay by bank without incentives.<\/p>\n\n\n\n Let’s take Walmart as an example.<\/p>\n\n\n\n Walmart prices in the cost of payments acceptance into their goods for all shoppers<\/strong>.<\/p>\n\n\n\n That’s because the management at Walmart isn’t totally inept and they recognize payments as a material COGS that their public shareholders don’t want the retailer eating. <\/p>\n\n\n\n Walmart’s cost of acceptance is a competitive advantage over other grocers due to the interchange discounts they receive for being a scaled merchant.<\/p>\n\n\n\n Same with Amazon and Costco.<\/p>\n\n\n\n Let’s say Walmart’s cost of acceptance is 1% (grocers on average pay an average cost of acceptance of 1.5% we’d estimate<\/a>). <\/p>\n\n\n\n If Walmart were to drop their prices by 1%, why would a rational cardholder pay by bank when they’re getting 3% cash back on their Robinhood card?<\/p>\n\n\n\n Or 2% on a standard rewards card?<\/p>\n\n\n\n Extending this logic, why would a card-carrying consumer pay by bank if they get NO discount?<\/strong><\/p>\n\n\n\n And by the way, the argument that a debit user will just pay by bank is increasingly suspect as even debit cards now offer cardholder rewards. <\/a><\/p>\n\n\n\n End of discussion.<\/p>\n\n\n\n Provide the consumer an incentive for enrolling their bank account.<\/p>\n\n\n\n![\"\"](\"https:\/\/i0.wp.com\/reformingretail.com\/wp-content\/uploads\/2025\/08\/image-3.png?resize=550%2C400&ssl=1\")
<\/figure>\n<\/div>\n\n\n![\"\"](\"https:\/\/i0.wp.com\/reformingretail.com\/wp-content\/uploads\/2025\/08\/image-4.png?resize=675%2C705&ssl=1\")
<\/figure>\n<\/div>\n\n\n\n
\n
![\"\"](\"https:\/\/i0.wp.com\/reformingretail.com\/wp-content\/uploads\/2025\/08\/image-5.png?resize=770%2C374&ssl=1\")
<\/figure>\n<\/div>\n\n\n\n
![\"\"](\"https:\/\/i0.wp.com\/reformingretail.com\/wp-content\/uploads\/2025\/08\/image-6.png?resize=770%2C562&ssl=1\")
<\/figure>\n<\/div>\n\n\nInstant bank payments presents perhaps the biggest opportunity to actually disrupt the stranglehold of card duopolies.<\/h4>\n\n\n\n
If retailers want to decrease their costs of acceptance, they need to dual price.<\/h4>\n\n\n\n