Visa launches payment service through banks as an alternative to credit cards

Visa said it plans to launch a dedicated service for bank transfers, bypassing credit cards and the traditional direct debit process.

Visa, which along with MasterCard is one of the world's largest card networks, announced Thursday that it plans to launch a dedicated account-to-account (A2A) payments service in Europe next year.

Users will be able to set up direct debits — transactions that take money directly from your bank account — on merchants' e-commerce stores with just a few clicks.

Visa said consumers will be able to more easily monitor these payments and raise any issues with the tap of a button in their banking app, giving them a similar level of protection when they use their cards.

Visa said the service would help people deal with issues like unauthorized auto-renewals of subscriptions by making it easier to reverse direct debit transactions and get their money back. Visa said it won’t initially apply A2A to things like streaming TV services, gym memberships and food boxes, but that it plans to do so in the future.

The product is initially scheduled to launch in the UK in early 2025, with subsequent releases in the Nordics and elsewhere in Europe later in 2025.

The current problem is that when a consumer sets up a payment for things like utility bills or childcare, they need to fill out a direct debit form.

But this gives consumers little control, as they have to share their banking details and personal information, which is not secure, and their control over the payment amount is limited.

Fixed direct debits, for example, require advance notice of any changes to the amount taken, which means you have to either cancel the direct debit and set up a new one or carry out a one-off transfer.

With Visa A2A, consumers will be able to set up Variable Recurring Payments (VRP), a new type of payment that allows people to make and manage recurring payments of varying amounts.

“We want to bring bank-based payments into the 21st century and give consumers choice, peace of mind and a digital experience they know and love,” Mandy Lamb, Visa’s managing director for the UK and Ireland, said in a statement Thursday.

“That’s why we’re partnering with UK banks and open banking players, and using our technology and expertise gained over years in the payment card market to create an open ecosystem for A2A payments to flourish.”

Visa's A2A product is based on a technology called open banking, which requires lenders to provide third-party fintech companies with access to consumer banking data.

Open banking has gained significant popularity over the years, especially in Europe, thanks to regulatory reforms of the banking system.

Technology has made possible new payment services that can link directly to consumers' bank accounts and authorize payments on their behalf — provided they have permission.

In 2021, Visa acquired Tink, an open banking service, for €1.8 billion ($2 billion). The deal came on the heels of Visa’s abandoned attempt to buy rival open banking company Plaid.

Visa's acquisition of Tenk was seen as a way for it to fend off the threat posed by fintech startups building products that allow consumers — and merchants — to avoid paying transaction fees on its cards.

Merchants have long complained about the credit and debit card fees charged by Visa and Mastercard, accusing the companies of inflating so-called interchange fees and preventing them from directing people to cheaper alternatives.

In March, the two companies reached a landmark $30 billion settlement to reduce their interchange fees — which are deducted from a merchant's bank account when a shopper uses their card to pay for something.

Visa has not disclosed details about how it will monetize A2A. By giving merchants the option to bypass cards for payments, there is a risk that Visa could cannibalize its card business.

For its part, Visa told CNBC that it has been and continues to be focused on enabling the best ways for individuals to pay and get paid, whether through a card or non-card transaction.