Has Real Disruption Finally Arrived?

Creative, norm-breaking advances in payments can happen in the strangest places. Just ask BIM Networks, Discover—and the ACH.

Another $13 billion poured into the top 250 fintech startups last year as investors doubled down on the business potential of disrupting staid financial-services providers and the moribund card-payments infrastructure. But where’s the actual disruption?  To date, very little has actually changed in either the economics for users (particularly merchants) or in the infrastructure (and relationships) governing participation.

All that might finally be starting to change.

From the standpoint of financial-account issuers (namely banks),
a decade of first-generation fintech “head fakes” feigning disruption of card issuers appears to be eclipsing with the serious consideration of buy now, pay later (BNPL) lending alternatives. At least some of the BNPL providers appear to be offering effective alternative lending solutions for getting new customers at better deals for both consumers and merchants.

This benevolence stands in stark contrast to the practices of would-be innovators like PayPal, Apple, Marqeta, Square, and Stripe. They offer slicker products with better customer service for consumers than conventional credit cards, but provide no real break on costs for either consumers or merchants.

The head fakes on debit cards are increasingly conspicuous, as a number of these first-generation fintechs skirt the spirit, if not the substance, of Durbin Amendment efforts at fairness in debit cards. They manage this by seeking smaller, exempt banks to process their debit card payments.

At an exempt bank—especially when PIN or PINless can be discouraged or diverted—a 45-cent average interchange fee can be garnered (and shared among the participants), instead of the 24-cent PIN (or PINless) rate for exempts (though even that is better than the 21 cents for all debit cards from the bigger non-exempt banks). This is just another reason many merchants are taking the plunge to guaranteed ACH (GACH) to get better rates than can be had on debit cards.

From the perspective of merchant processors and acquirers, though, you’d be even harder pressed to figure out what the $73.8 billion invested in the top 250 fintechs over the past five years has produced in terms of real product innovation and operating choices.

Any Payment Type

That question might finally begin to be answered with the announcement in February that BIM Networks would be working with Discover to liberate merchants seeking alternative payments—beginning with GACH—without the traditional technology lift that typically prevented previous initiatives from ever getting off the ground.

Better still, BIM white-labels GACH for the merchant’s branding use, affording an opportunity to build payment trust while engaging up to four times the consumer use compared to cards-on-file and, in the case of gasoline, a typical 10-to-25-cent-per-gallon discount for the user.

So exactly who is BIM? BIM stands for Buy It Mobility, a payment “distributor” started by ex-Wall Street investment analyst Adam Frisch, originally as a mobile-wallet play delivering GACH payments. BIM first gained notoriety in the mid-2010s as an open-payment option, mobile wallet/platform.

That platform was selected by the Merchant Customer Exchange (MCX), the ultimate attempt at card-payments disruption launched by dozens of the nation’s largest merchants. MCX got as far as a substantive pilot test of its wallet (CurrentC) in 2015 before succumbing to slow consumer adoption of mobile wallets.

So BIM moved on, building an estimated 45% share of the fuel/c-store market for GACH acceptance. New customers in the quick-service restaurant and grocery verticals are rumored to be on the way. February’s announcement—at a conference held by the Merchant Advisory Group—depicted a solution that can be implemented by a merchant simply by placing a URL into their apps and websites. BIM and Discover handle the rest, including consumer identity verification, bank connectivity, processing and settling the transactions.

With this deal, BIM Networks offers a fully-formed GACH capability to virtually any merchant—independent of acquirers or gateways. The merchant’s customers only see their brand, while their infrastructure (POS, acquiring, and back-end settlement) sees these transactions like a Discover transaction, albeit with the ACH benefits one would expect.

When the consumer clicks on this payment choice (or presents the QR code), the payment authorization and checkout data simply pass into the ether to BIM’s Buy Pass platform for processing via the Discover network and virtual cards—which more than 99% of merchants in this country can accept.

Universal Acceptance?

This low-profile infrastructure could, in theory, also support credit, debit, or other unconventional payment types in the future via this independent rail choice (for example, Discover for credit and debit, Pulse for PIN and PINless debit, and so on).

And it could eventually route emerging new payment types like account-to-account (for example, AppBrilliance) or peer-to-peer and business-to-business (for example, Real Time Payments or FedNow) through its independent interconnections as well. No acquirer needed.

These independent but interconnected rails offer theoretically universal merchant-acceptance possibilities for all effective payment options, addressing the latest innovations in payment alternatives without merchants needing to coax their acquirers to participate. Favorable trends include:

– Burgeoning adoption of BNPL services, where merchants can pick “friendly” offerings while avoiding a typical 5%- to-8% transaction cost on other rival services;

– Expanding interest in A2A and P2P payment alternatives using bank accounts both online and at POS and following in the footsteps of rapidly growing GACH, where some studies estimate 86% of consumers have employed some account-linking facility;

– Proliferating use of QR codes, a la AliPay and WeChat Pay but also PayPal, with order-ahead and pay-at-the-table functionality being adopted by thousands of restaurants and bars;

– Opening gambits by big banks (for example, Citi and Chase) to offer The Clearing House’s RTP system for small business;

– And new and planned forays for Venmo (and, eventually Zelle) to enter the purchase-payments space.

The bet is that many consumers (especially those under 40 who eschew conventional credit and debit cards) and small businesses (eager to finally liberate themselves from writing checks or using expensive cards) will be first to show up for innovations like the BIM/Discover payment rail, where any merchant can participate.

What makes this innovation even more interesting is that the good old Discover Network happens to be an active participant in—and beneficiary of—both BNPL and BIM initiatives. Discover invested $30 million in BNPL fintech Sezzle in November (Sezzle was purchased four months later for $337 million by Australian fintech Zip).

And, don’t forget, Discover is a legacy card issuer itself, with 57 million credit cardholders plus Pulse debit card interconnections throughout the country. Plus, all
those Sezzle/Zip consumers could logically be steered to BIM/Discover-accepting merchants.

A New Sheriff

Discover is also an investor in BIM Networks, enabling BIM’s transactions to traverse the world through the network’s myriad connections in the card payment system. Over the years, the likes of PayPal, Google, and Apple have tried to figure out how to leverage the Discover network for their own independent access to payment-processing alternatives.

But now, what’s to stop any merchant from boldly going where no merchant has gone before? And, with independence from acquirers, who’s to deny that real, structural change in payments economics and choice might finally be possible?

BIM Networks is no bouncy, breathless, chest-thumping fintech, and its payments acumen is proven. Discover has the indisputable value of a global network, but with the new cachet of making real innovations happen in a bigger way. The reported waves of merchant, partner, and acquisition inquiries to this pair over the past month suggests that a new sheriff is in town, and it’s called BIM Networks. BIM who? Ask no more.

—Steve Mott is the principal at payments consultancy BetterBuyDesign.