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US banks are planning to introduce a new digital wallet solution called Paze to compete with rivals such as Apple Pay, Google Pay or PayPal.
On Monday (March 27), Early Warning Services (EWS), a fintech company jointly owned by seven of the largest US banks and operator of the popular Zelle service, announced Paze, the name of its upcoming digital wallet solution.
Paze will allow consumers to add their credit and debit cards to the digital wallet and make e-commerce transactions more frictionless and secure. At the launch, the wallet could be linked with 150m Visa and Mastercard credit and debit cards with plans to add further card networks in the future.
“We chose the name Paze for the simplicity of its functionality and overall ease,” an EWS spokesperson told VIXIO.
Paze will exist in parallel with Zelle, the account-to-account (A2A) payments network, although the two will not be connected.
“Paze and Zelle are two separate payments products that serve different purposes,” the spokesperson added.
Are banks too late to the party?
Once rolled out, Paze will compete with existing digital wallet solutions such as Apple Pay, Google Pay, Samsung Pay or PayPal, which have increasingly chipped away at the banks’ revenue.
However, analysts and market experts largely agree that digital wallets have already made their way into the mainstream in the United States with a handful of bigtech and fintech giants dominating the space. This may raise the question of whether banks are already too late to get into the race.
The digital wallet space has grown dramatically in recent years and reached a value of $120bn in 2021.
According to the Worldpay Global Payments Report 2023, digital wallets have already displaced credit cards as consumers’ preferred payment method for e-commerce transactions and are projected to grow to account for 41 percent of e-commerce transaction value by 2026.
The current 12 percent share of digital wallets for in-person POS transactions is also expected to grow to 16 percent in the next three years, the acquirer says.
Meanwhile, research by Morning Consult estimates that nearly two-thirds of American adults already use a digital wallet every month.
PayPal is by far the most popular digital wallet with around 71 percent of Americans using it, followed by Block’s CashApp (44 percent), Venmo (39 percent), Google Pay (36 percent) and Apple Pay (31 percent).
Nonetheless, these numbers also show that digital wallet usage is typically not exclusionary and it is not unusual for users to install several digital wallet apps on their phones.
For example, the Morning Consult research shows that around 89 percent of Apple Pay, Google Pay and CashApp users say they also use PayPal.
This suggests that despite facing significant competition in the digital wallet space, there may be gaps a new competitor could fill.
Battle for the wallet
PayPal’s leading position in digital wallet usage is partly due to its long-established market presence.
For e-commerce, it is also the most widely accepted digital wallet solution with more than 80 percent penetration of the top 1,500 online merchants across North America and Europe.
Over the years, PayPal has expanded its service offering across its digital wallet, including rewards and a buy now, pay later (BNPL) checkout option.
Apple Pay has focused on convenience that it can bring its iPhone users, enabling them to link their cards directly to their phones without the need to first install an app. Apple is also working to expand the services linked to its wallet. In 2019, it launched Apple Card in the US in partnership with Goldman Sachs, while the company just rolled out (March 28) its own BNPL product which sits within the Apple Wallet.
When announcing Paze, EWS emphasised that the upcoming wallet builds its value proposition on user experience and trust.
“Paze solves the key obstacle of matching convenience and trust in e-commerce and offers the peace of mind that consumers look for from their financial institution,” the company said in the announcement.
It improves the online checkout experience for consumers, since they do not have to type in their card details each time they shop online, and is offered by the financial institutions consumers already trust.
Trust may indeed be a key differentiator of the bank-owned wallet, especially in the wake of recent market developments, such as the Hindenburg report which put the credibility of non-bank competitor CashApp into question.
Nonetheless, EWS did not reveal much information about the value proposition for merchants and it remains to be seen whether the banks can persuade a wide range of retailers to sign up for yet another payment method.
EWS owner banks include Bank of America, Truist, Capital One, J.P. Morgan, PNC Bank, US Bank and Wells Fargo.
The banks will start testing the new digital wallet in June and the full rollout is expected to take place in late 2023.
