The Death of Interchange

This year marked my first visit to Money 20/20, an absolute whirlwind of a trip to Las Vegas, where I had the pleasure of sharing the stage with Steve Ledford, Former SVP of Product at The Clearing House and Advisor at Waivr in a panel moderated by Amy Cheetham, Partner at Costanoa Ventures and one of our investors.

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Provocatively titled The Death of Interchange, our panel discussed current threats to the interchange business model and the opportunities that arise from it. As the founder of a company focused on bringing Pay by Bank to subscriptions, I’m naturally biased towards its demise, but I thought I would share a recap of our thought-provoking discussion.

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In my eyes, a perfect storm is brewing that will lead to a shift in consumer payments in the US market over the next 10 years.

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#1 is regulation, with the Credit Card Competition Act first introduced in 2022 and again reintroduced this year, there is a clear signal that regulators are actively seeking to cap these fees, with many merchants lobbying for this. In part because high interchange fees push up prices for everyone, and they also fund a growing array of cardholder rewards—which flow largely to affluent customers. In and of itself, such an act wouldn’t kill interchange, but it would kill the #1 driver of the current consumer reliance on cards: hefty rewards.

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#2 is a shift in merchant behavior. For many years, merchants saw interchange fees as simply the cost of doing business, those days have ended. Merchants are lobbying congress, suing card networks and looking for alternatives.

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#3 are emerging payment technologies that are pulling the curtain on the limitations of the card network. This is something we see at Waivr every day, specifically when it comes to recurring payments. When 48% of subscription churn is attributed to failed payments, and recurring payments have outpaced the growth of one-time, the card network simply doesn’t serve the future of the economy. 

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Bank to bank payments are nothing new, but the technology that can power the next generation of it is. At Waivr, we believe that by pairing open banking, RTP and ACH, and bringing a digital payment experience to the platforms we are now transacting with, the next wave of consumer payments technology will arise. 

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Imagine a world where you could Pay by Bank by tapping your phone, or paying at your favorite e-commerce store with your phone number, to simply route to your bank instead of your card. Where money settles instantly, and a data-rich network can prevent any failures. New technologies will enable modern bank to bank payment experiences, where rewards will not be predicated on higher prices, but rather the efficiency of the network.

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This can sound like a nightmare for financial technology companies and institutions that heavily rely on the interchange business model. The good news is that there is time to adapt, and the opportunities that arise from a new generation of payments are endless.