As a payment enthusiast, I’ve been researching the ins and outs of building a digital wallet that stands out in a crowded market. One thing that’s become clear is that payments themselves are a commodity โ€“ everyone wants to offer them, and they’re an essential part of any business transaction. However, the real value lies in what you can build on top of those payments.

To start, let’s talk about card issuing. In order to issue cards, we need to have a relationship with a bank or a card scheme (like Visa or Mastercard). This allows us to create physical or virtual cards that our users can use to make purchases. But here’s the catch: card issuing is a complex process that requires significant resources and expertise. That’s why many fintech companies choose to partner with existing card issuers rather than going it alone.

Another important aspect of building a digital wallet is financial reconciliation. Reconciling payments means ensuring that the funds leaving your account match the funds entering the recipient’s account. It sounds simple, but it’s actually quite complicated when you consider things like fees, refunds, and disputes. To get this right, we need to have robust processes in place to track every transaction and ensure that everything adds up correctly.

Payment facilitation (or “payfac”) is another crucial element of our digital wallet. A payfac acts as an intermediary between merchants and payment processors, allowing them to accept payments without having to set up their own payment processing infrastructure. By becoming a payfac ourselves, we can help merchants streamline their payment operations and save money on fees.

Of course, no discussion of payments would be complete without mentioning interchange. Interchange fees are charges paid by the merchant’s bank to the cardholder’s bank whenever a card transaction occurs. These fees can add up quickly, which is why many merchants prefer to use alternative payment methods like bank transfers or e-wallets. As a digital wallet provider, we need to carefully consider how interchange fees will impact our pricing strategy and find ways to minimize their impact on our merchants.

So, how do we plan to generate revenue if payments themselves are becoming increasingly commoditized? The answer lies in creating value beyond just payments. We can offer additional services like fraud detection and prevention, data analytics, and customer support to help merchants optimize their payment operations. We can also explore other revenue streams, such as interest on deposited funds or offering premium features to heavy users.

In conclusion, building a successful digital wallet requires careful consideration of various factors, including card issuing, financial reconciliation, payfac, and interchange. While payments may be a commodity, there’s still plenty of room for innovation and differentiation in the space. By focusing on providing exceptional user experiences and building a strong brand, we believe we can succeed in this competitive landscape.

If you would like to dive deeper, here are some of the timeless write-ups I came across that will answer more questions

  1. Interchange in 1000 words by @matttbrown
  2. Payfac in 1000 words again by @mattbrown
  3. The default banking-as-a-service platform will be developer-first by @ay_o
  4. again by @ay_o
  5. Last but not least, this podcast by the Acquired team. Listen at 1.5X or 2X, its a massive 3.45hrs!!