What is Paze?
Paze is a new mobile wallet that will be launched next year by some of the largest banks in the US, including JPMorgan Chase, Bank of America, Wells Fargo, and others. Paze will allow customers to link their credit and debit card accounts to their smartphones and make payments at stores, online, and peer-to-peer. Paze will also offer rewards, discounts, and other benefits to its users.
Paze is the latest sign that big banks see partnerships — either working collectively or even in collaboration with tech firms — as the best way to stop the advances of the likes of Apple, Google and, most recently, Elon Musk’s X (formerly known as Twitter), which aim to offer banking services to their millions of users.
Why do banks need Paze?
Banks are feeling the pressure from Big Tech groups that are encroaching on their territory. Apple Pay, for example, accounts for just 6 per cent of global purchases, but the number of Apple Pay users has climbed rapidly, from 60 million five years ago to more than 500 million now. Industry watchers say this has made banks nervous.
Big Tech groups have also been pushing harder into other areas of financial services, such as lending, investing, and saving. For instance, X recently announced that it will launch a new feature called X Money, which will allow users to send and receive money, access loans, and earn interest on their balances.
Banks fear that Big Tech groups could use their massive customer base, data, and brand loyalty to lure away their customers and erode their profits. By creating Paze, banks hope to retain their customers and offer them a convenient and secure way to pay with their phones.
How will Paze work?
Paze will be based on a technology called Zelle, which is a digital payment network that enables customers to send and receive money instantly from their bank accounts. Zelle was launched in 2017 by a consortium of US banks as a rival to PayPal and Venmo.
Paze will use Zelle’s infrastructure to connect customers’ cards to their phones. Customers will be able to download the Paze app or use it within their existing banking apps. They will then be able to scan a QR code or tap their phone at a terminal to make a payment. Paze will also support online and in-app purchases.
Paze will not charge any fees to customers or merchants for using its service. Instead, it will generate revenue from interchange fees that are paid by merchants to card issuers for each transaction. Paze will also offer incentives to customers and merchants, such as cashback, coupons, loyalty points, and discounts.
What are the challenges for Paze?
Paze faces several challenges in its quest to compete with Big Tech groups. One of them is customer adoption. According to a survey by PYMNTS.com and Bizrate Insights, only 14 per cent of US consumers use mobile wallets regularly, while 60 per cent have never used them or have stopped using them. The main reasons for not using mobile wallets are security concerns, lack of trust, and lack of perceived benefits.
Another challenge is merchant acceptance. Although more than 70 per cent of US merchants accept contactless payments, many of them do not support QR codes or Zelle. Paze will have to convince merchants to adopt its technology and offer them compelling reasons to do so.
A third challenge is regulation. Paze will have to comply with various rules and standards that govern the payment industry, such as anti-money laundering, consumer protection, data privacy, and interoperability. Paze will also have to deal with potential antitrust scrutiny from regulators who may view its collaboration as anti-competitive.
How are other countries responding to Big Tech?
The US is not the only country where banks are trying to fend off Big Tech groups. In Europe, several banks have joined forces to create European Payment Initiative (EPI), a new payment system that aims to challenge the dominance of Visa and Mastercard. EPI will offer a card and a digital wallet that can be used across Europe for online and offline payments.
In China, meanwhile, the government has been cracking down on Big Tech groups that have become dominant players in the payment market. The authorities have imposed new regulations on Ant Group and Tencent, the owners of Alipay and WeChat Pay respectively, which together account for more than 90 per cent of mobile payments in China. The regulations aim to curb their market power, protect consumer rights, and prevent financial risks.
