Working With Early Warning, Big Banks Eye a New Digital Wallet

A major venture by some of the country’s biggest banks to launch a digital wallet using a platform from Early Warning Services LLC, news of which emerged early Monday, is likely to benefit from the banks’ technology resources. But it could be hindered by consumers’ entrenched preferences for major-brand wallets that have been in the market for years, observers say.

Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co., along with four other, unnamed financial institutions, are working on the wallet project with Early Warning, according to reporting by The Wall Street Journal. Early Warning is the network operator best known for its Zelle peer-to-peer payment system.

The wallet, which has not yet been named, will include consumers’ Visa and Mastercard credit and debit cards and is intended for online purchases, according to the Journal story. With support from some of the country’s biggest banks, the new wallet will have enabled 150 million cards by the time it debuts, the Journal report says, though information was not immediately available regarding the introduction’s timing. The Zelle network, which competes with other major P2P systems such as PayPal, Venmo (owned by PayPal), and Cash App, is not intended to be used for the new product, according to the story.

Experts point out the new wallet will enjoy obvious technology and marketing advantages owing to its big-bank backing. It also represents a major rejoinder to non-bank initiatives, such as Google Wallet and Apple Inc.’s Apple Pay, that have been in the market for years, they say.

“It makes sense for the banks to create an offering that would compete with Apple Pay, Google Pay, and PayPal, since they are competitive threats in the payments space, and in some cases, like Apple, competitive banking offerings are appearing,” notes Thad Peterson, strategic advisor at financial-services consultancy Aite-Novarica Group, in an email message. For its part, Apple last year announced a buy now, pay later service for its 7-year-old Apple Pay wallet, a big thrust into a lending market long controlled by banks. Apple Pay Later has yet to launch, however.

The banks behind the new offering also enjoy some key advantages, observers like Peterson point out. “Linking to a bank’s existing online capability and the customer’s cards should make for an easy onboarding process,” Peterson says by way of example.

But the new wallet will face a number of obstacles, observers point out. Probably the biggest one has to do with the entrenched relationships competing wallets have built with both users and merchants. “In order for this to succeed, [the banks] need to convince consumers to shift away from the wallets that they’re currently using, and they also have to persuade merchants to accept another payment alternative.  Both of these are challenging,” Peterson says.

Indeed, past efforts by consortia to create a nationally accepted mobile wallet have not fared well. In 2017, a retailer-controlled payments consortium called Merchant Customer Exchange sold its technology assets to Chase after years trying to establish its CurrentC wallet with consumers and merchants. The previous year, the venture shut down a major pilot it had been running in Columbus, Ohio. For its part, Chase incorporated CurrentC into its Chase Pay wallet, which it had launched in November 2016 and ended operations in 2019.

The venture in digital wallets represents the latest thrust into new payments markets by Early Warning, which did not immediately respond to queries from Digital Transactions News about the initiative. Though the venture appears to be based on technology apart from Early Warning’s Zelle network, the company hasn’t been shy recently about ambitions to widen the network’s scope into retail payments. It has also had to contend with allegations by U.S. lawmakers that consumer losses to scams on Zelle, in the form of transactions unwittingly authorized by users who are duped by fraudsters, are too high. Many of the allegations are based on a U.S. Senate report concerning Zelle.

In defense of Zelle, the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, and The Clearing House Payments Co. issued a statement in October acknowledging that, while Zelle is not free of fraud, the legislators’ report “fails to acknowledge that 99.9% of the 5 billion transactions processed on the Zelle network the past five years were sent without any report of fraud or scams.”