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Walmart forges processing partnership with Chase (WMT, JPM)

Published by Business Insider on Fri, 23 Sep 2016

This story was delivered to BI Intelligence "Payments Briefing" subscribers. To learn more and subscribe, please click here.JPMorgan Chase announced that it will begin processing Chase Visa payments made at US Walmart and Sams Club stores, along with Sam's Club's website, through ChaseNet, the banks closed-loop processing network for Chase Visa cards. The partnership marks an expansion of the relationship between ChaseNet and Walmart, which was previously confined to Walmart e-commerce processing.Its probable that Chase Visa cards comprise a significant share of Walmarts overall card payments. Eighty percent of US consumers prefer debit or credit cards for both in-person and online payments, according to TransFirst, which means its likely that a considerable amount of Walmarts purchasing comes from payment cards. Because Chase, which issues predominantly Visa cards, is the largest US bank by assets, its likely that its the issuer of a decent share of cards used for spending at Walmart. As such, its likely the number of payments the partnership will cover is not insubstantial.That makes the expansion of the partnership a major opportunity for ChaseNet.ChaseNet was already processing Walmart e-commerce payments. Last year, Walmarts digital sales totaled $14 billion, according to Fortune. And thats a segment thats growingglobal online sales grew nearly 12% year-over-year (YoY) in Q2 2016.But the expanded partnership gives them much more access. Walmarts shopper traffic in-store is also growing, according to Fortune, which means ChaseNet will also get access to this population. In addition, adding Sams Clubs online business, which grew by46% in Q4 2015, gives ChaseNet access to another large and fast-growing revenue stream. And it could also help lower interchange payments for Walmart, which has been a sticking point for the retailer in recent months. Walmart pays a considerable amount in card fees annually. And earlier in 2016, the retailer sued Visa over its fee structure. But for its partners, ChaseNet provides fixed-rate and often discounted interchange pricing on eligible cards, which means that Walmart would pay considerably less on any purchase made via a Chase Visa card, thereby decreasing fees on a number of purchases. That could help relieve tensions between Walmart and Visa in other areas by making fees across the board more affordable.Evan Bakker, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on payments gateways that explains what they do, the benchmarks on which they compete, their growth drivers, and the key players. It also assesses the potential for gateways to impact legacy processors.Here are some key takeaways from the report:Payment gateways help e-commerce merchants accept online transactions. They serve asthe online version of a payment terminal and front-end processor for online and mobile sellers.Gateways typically sell bundled services, including payment acceptance, data reporting, and fraud management.Gateways have an opportunity to capitalize on the growing online processing market. BI Intelligence estimates that the US online processing marketfrom which gateways extract some of their revenuewill be worth about $10.7 billion this year.The market will grow to $17.5 billion by 2020, driven by the increase in online shopping. As online sales rise, gateways'addressable audiencee-commerce merchantsis getting both larger and more valuable, affording gateways an opportunity to seize and compete for more potential revenue.Gateways pose threats to the old guard as more merchants embrace the online-to-offline (O2O) business model. Many of the most successful tech companies, like Uber and Airbnb, leverage an O2O model, in which customers pay for in-person goods and services digitally. With an early-mover advantage among these types of retailers, gateways might begin to displace revenue from legacy processors because they will substitute rather than complement in-store processing volume.In full, the report:Explains how gateways function and compete with each other in the payments ecosystem.Identifies the factors enabling gateways to capture long-term growth.Forecasts the size of the online and in-store processing markets to give context on the industry gateways operate within.Lists the key gateway providers and explains what makes each successful.Assesses the disruption opportunity for gateways and how this will affect legacy processors.Interested in getting the full report' Here are twoways to access it:Subscribe to anAll-Accesspass to BI Intelligence and gain immediate access to this report and over 100 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensureyou stay ahead of the curve and benefit personally and professionally. >> START A MEMBERSHIPPurchase & download the full report fromour research store. >> BUY THE REPORTJoin the conversation about this story
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