Credit card network Visa (NYSE:V) announced this week that it's partnering with fintech player Ingo Money to launch a new offering for retailers and banks, called QuickConnect, that will let them make rapid digital payments to customers, circumventing the old ACH/paper checks system. Despite the ongoing shift to modern digital payment systems, the legacy systems still move massive amounts of money around -- and Ingo Money says $33 trillion worth of paper checks and ACH payments a year could be shifted to the new Visa-linked platform.
In this segment of the MarketFoolery podcast, host Chris Hill and senior analyst Jason Moser discuss this latest salvo in the War on Cash, the size of the opportunity for Visa, and what it means for others in the payments industry.
A full transcript follows the video.
This video was recorded on Dec. 13, 2018.
Chris Hill: Visa announced a partnership to help companies eliminate $33 trillion in paper checks. It is one more move in the War on Cash. I remind our dozens of listeners, it was an executive at Visa who used that phrase.
Jason Moser: We piggybacked on it.
Hill: We piggybacked on it, but that was not hyperbole on our part. We were quoting directly from a Visa executive who said, "We are at war with cash." You like this move?
Moser: I do. This really shines a light, I think, on how valuable that Visa Toll Booth, and Mastercard as well. They both do the same thing. But when you want to do something in finance that can affect the largest population and make an experience better, faster, you're going to be relying on Visa and Mastercard. You're going to have to make sure you bring them into that equation at some point or another.
It's interesting to understand a little bit why this matters. A lot of times, the automatic clearing house process is a way for companies to be able to push these payments to individuals. That has existed for a very long time. I think the fintech industry is looking at the ACH process as a little bit antiquated. And primarily, that's because of the time involved in moving funds. It can sometimes take a matter of a couple of days. While an institution may make those funds available to you immediately, they could still be on the hook if there's a chargeback. So ultimately, what this does is, instead of utilizing the automatic clearing house network, this essentially jumps on those Visa and Mastercard rails. In this case, it's going to be Visa. I suspect we'll see Mastercard participating in this in some way, shape or form sooner or later.
When you look at the actual numbers involved of how big of a deal this could be, there's an association called the National Automated Clearing House association, NACHA. Kind of makes me think of nachos. I don't know why that is.
Anyway, NACHA reports that the average ACH transaction costs around $0.11 per transaction. There are over 25 billion ACH payments made every year. There were more than 25 billion made in 2016, and that number is up from there. So, you can see the opportunity that exists there. I think this is one way for companies like Visa and Mastercard to get in there and really focus on the one big differentiator here, and that is the time involved in getting the money from Point A to Point B. That's the big problem this solves for a lot of people. You get there faster, you reduce the risk of chargebacks, because you're riding right on those car rails.
It's the first step, I think, in what we'll see as the continued evolution in fintech and the companies that are participating.
Hill: What about a company like Paychex, which is in the business of paychecks, and HR solutions? If you're seeing this news, that's going to cause an upset stomach.
Moser: I would think. I think employers who utilize Paychex or other forms of payment software are going to look at this and see if there's another way that they might be able to pay their employees in a timelier fashion and even cheaper than they're doing so now. We've gotten to the point where most people -- I think most people. There are still some people out there that physically want to see that check. I know personally, I don't want to see it. I want you to just get that money straight to my account. I want another check like I want another hole in the head. So I think that for companies looking at what options exist out there, and you're seeing companies like Square and PayPal really participating in this, as well, yeah, if you're Paychex or a company like that, you've got to be looking at this and thinking, "Oh, man, what are we going to do to keep up here?" Because this is certainly something that could disrupt their business.