Chase undercuts fintechs with same-day card acceptance for small shops
Several large mobile point of sale projects are hitting the market at once to reach financially troubled retailers, with JPMorgan Chase making use of a three-year-old acquisition to push back against the technology firms that have been gobbling up small-business clients.
The bank is offering its business clients a mix of contactless payment technology and digital deployment via its WePay unit, paired with other business banking services. Called QuickAccept, the bank’s service supports card payments through a contactless reader or app, with sales reaching the business’ Chase account the same day.
The same-day fund access is free when the payment is sent to a Chase account — undercutting mobile point of sale technology companies that charge fees of about 1.5% for real-time transfers. The bank plans to migrate most of its base of about 4 million small businesses to QuickAccept over the next few months.
“It has the banking essentials every business needs at their fingertips to get started. Clients don’t need to embark on a separate application process to access merchant services,” said Patrick Freeman, general manager for small business deposits at JPMorgan Chase, who said the breadth of overall financial services offered to small businesses, such as business checking, credit cards and merchant services, makes the fee waiver possible.
The banking giant is operating against a couple of backdrops combining health and economic challenges. Its new product comes at almost the same time as Visa debuted software-based mobile point of sale technology that avoids hardware attachments for Android devices. A few days earlier, MagicCube launched i-Accept, a similar product that has support from Visa, Mastercard, Discover and American Express. A few months earlier, Apple acquired Mobeewave to enable Apple Pay support for software-based mobile point of sale.
By dumping hardware, it’s easier and less expensive for merchants to add contactless payments, addressing health concerns during the pandemic. But for years, Square, Stripe and PayPal have offered digital payments through an API, gaining ground in a small-to-midsize merchant market that banks had underserved for years, if not longer.
"While big banks have often provided sophisticated solutions for their bigger clients, the smaller end of the market has perhaps been less well served," said Gareth Lodge, a senior analyst at Celent. "The ease of opening an account has benefits for the bank too. If it's digital, account acquisition costs will likely be lower as well, and will reduce the time for the bank to start earning money."
Stripe, Square and PayPal have added more financial services such as credit, with Square obtaining an industrial bank license that will eventually allow it to make loans directly to businesses without the need for a bank intermediary; and Stripe luring more investment to diversify into businesses that did not traditionally operate online.
Chase began to address the fintech trend in 2017 when it acquired WePay, which offers an API connection for small businesses and a bridge to the bank’s merchant services business, which can compete with Stripe and Square given JPMorgan Chase’s scale and breadth of services.
Chase is also well into a 10-year partnership with Visa that began in 2013 and led to the development of ChaseNet (and by extension, Chase Pay). The bank describes ChaseNet as something that distills a five-party acquiring ecosystem to just three parties — as long as both the merchant and consumer are Chase customers. The end result trims costs and improves security, according to Chase.
In early 2019, Chase unveiled JPM Coin, a digital coin prototype for institutional clients and B2B money flows. Linked to the U.S. dollar, JPM Coin allows the bank to handle B2B transfers through its Quorum Blockchain.
Both Stripe and JPMorgan Chase in the fall of 2019 took steps to expedite payment processing, with Stripe adding a Visa card and Chase's WePay adding same-day deposits. WePay has additionally invested in card-present and card-not-present technology to support multichannel shopping and payments, addressing contactless payments at the point of sale, remote payments and omnichannel commerce.
“This is an ‘Empire Strikes Back’ move by JPMorgan Chase,” said Raymond Pucci, director of the merchant services practice at Mercator Advisory Group, adding funding-to-bank-account function is the offering's killer feature.
“Chase already has a few million small-business customers who will be quite happy to use this new service,” Pucci said. “The bank will also benefit from cross-selling other financial products to merchants as a one-stop-shopping play.”
The pandemic has created a funding crisis for small businesses, which often have less than a month of cash on hand. Both fintechs and banks have moved on this crisis through government stimulus programs, alternative lending and general merchant products designed to streamline other parts of the business, such as appointment booking or supply procurement. Through its new program JPMorgan Chase hopes to more closely match business activities and revenue to the corresponding expense.
“A restaurant, for example, may have a happy hour on Friday. Historically it wouldn’t get paid until Monday but would have to pay staff and other expenses,” said Bill Clerico, CEO and founder of WePay, “This allows them to get paid right away.”