AppBrilliance Opens Pay-by-Bank Options for Closed-Loop Digital Wallets

When The Clearing House amended its rules on digital wallets in early May, few in the industry paid much attention. After all, it was little more than a footnote to its use cases.

However, the executive team at Austin-based FinTech AppBrilliance took note of the change, and its new API strategy may have implications for the future of closed-loop digital wallet payment processes.

The Clearing House’s new rules, which went into effect May 3, clarify permissible uses for Request for Payment (RFP) messages, focusing on closed-loop digital wallets. Under the rules, RFPs can facilitate transfers within the same individual’s accounts, including merchant-specific digital wallets, provided ownership is verified through due diligence.

The rules mandate financial institutions to notify TCH about Message Senders and permissible uses, ensuring compliance through rigorous know-your-customer (KYC) procedures. These measures aim to enhance security and transparency, preventing misuse of RFPs while promoting legitimate account-to-account payments within the RTP® Network.

In short, it gives a green light to pay-by-bank payments for closed-loop digital wallets, many of which have become preferred by customers of quick-service restaurants and merchants like Starbucks, CVS and Dunkin’.

The rule change was met with notable silence — publicly, anyway — until Monday (July 29), when AppBrilliance announced it was leveraging its Money API to capitalize on it. AppBrilliance has white-labeled its real-time, frictionless payments for closed-loop digital wallets using the RTP Network and FedNow® Service. This new integration allows for instant account-to-account transfers within closed-loop systems, enhancing transaction speed and security and reducing reliance on traditional card networks.

The new TCH rule enables the transactions; what AppBrilliance does is remove the friction in the process, whether it’s in-app, online, or at the point of sale.

As AppBrilliance CEO Eric Smith told PYMNTS, if a consumer wanted to pay-by-bank with instant payments in a closed-loop system — say Starbucks, for example — the consumer would need to receive what amounts to an invoice from its bank.

That invoice — either via email or SMS — would then need to be approved for the transaction to be completed. AppBrilliance works with the bank and the merchant to make pay-by-bank transactions automatic, provided that the bank is part of the TCH platform.

“What we’ve done is we’ve created technology that effectively takes all those rough edges off of that Request for Payment process,” Smith said. “It creates a real-time payment tunnel between the consumer, their bank and the merchant, and conducts all of that within a white label familiar flow inside the merchants app. It makes RFP consumer friendly, basically.”

Smith sees the biggest opportunity for his company with The Clearing House, but also works on FedNow payments rails. For retailers and merchants, he believes it will enhance customer loyalty and increase sales. He said AppBrilliance is currently partnering with leading payments processors, digital wallet platforms and banks. AppBrilliance is backed by Truist Ventures, the corporate venture arm of Truist Financial.

PYMNTS has done substantial research in digital wallet usage, most recently with Google Wallet. However, the most relevant research for closed-loop systems may actually come from a February report produced with AWS. It found that digital wallet adoption is highest among younger and higher-income consumers. Seventy-nine percent of Gen Z use digital wallets, compared to only 26% of baby boomers and seniors.

Among the report’s other key findings:

Digital wallet users spend 31% more on average than non-users across purchase categories. This suggests digital wallet users are valuable customers for merchants to pursue.

While debit cards remain the primary underlying payment method for digital wallet transactions, there is growing interest in using cash balances stored within digital wallets. For online retail purchases, PayPal balance (35%) has surpassed debit cards (31%) as the top payment method within digital wallets.

This trend toward stored value in digital wallets indicates consumer interest in closed-loop wallet systems that go beyond just storing card information. Over half of consumers are interested in additional digital wallet features like bill payments, money transfers and investing.

However, concerns remain about storing personal information on a single platform. Security and privacy worries are the second most cited reason (23%) for not using digital wallets, after preference for physical cards (30%).

To drive further adoption, especially among younger users, digital wallet providers should focus on developing value-added financial services within their closed ecosystems while addressing data security concerns. Offering features like recurring bill payments could help attract and retain customers.