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Will Apple's New Money-Transfer Idea Leave Visa and MasterCard in the Dust?

It would set a dangerous precedent for the card networks if Apple builds a new payment product that routes money around their pipes.

Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

When Apple launched Apple Pay last year, the more progressively minded in the payments industry were disappointed that it decided to work closely with credit card networks and avoided disrupting yet another industry it entered. They may yet get their wish.

Apple is now in talks with banks about the development of a new payment service that would allow iPhone users to send money to another iPhone user, as Re/code and others reported last week. And there’s a chance that Apple will attempt to bypass Visa and MasterCard in the process by working directly with banks on this project, one source with knowledge of the talks said.

Although Apple’s strategy has not been fleshed out, the current idea could cost the credit card companies if it becomes a hit (yes, it’s a big “if”). But more importantly, it would set a dangerous precedent for the card networks if Apple, as one of the most powerful technology companies in the world with a track record for shaping consumer habits, builds a new payment product that routes money around their pipes.

Here’s what we know so far, according to multiple industry sources: Apple has discussed the money-transfer product with the country’s largest banks. The big credit card companies are aware of these talks and think they still have a chance of getting involved. All sources believe Apple intends to release such a product at some point. Said another way, this appears to be more than an experiment.

What we don’t know: Whether the credit card companies are actively engaged in discussions about getting involved or whether they are waiting to hear from Apple. Spokespeople for Apple, Visa and MasterCard declined to comment on the potential new Apple payments service.

There are few ways Apple could launch such a product without heavy involvement from the card networks. They could partner with clearXchange, a payment network that is owned and run by several of the country’s biggest banks, including Chase and Bank of America. The network is designed specifically for person-to-person payments and routes money directly from one bank account to another. If a bank lets you send money to someone by using the recipient’s email address or phone number, there’s a good chance it runs through the clearXchange network. A clearXchange spokeswoman declined to comment.

The advantages of this approach include lower costs for Apple and more control over how its system works. On the other hand, one big downside would be the work it would take to expand such a product outside of the U.S. since Apple would likely have to negotiate new bank deals in each region. A partnership with Visa and MasterCard, industry sources say, would help make international expansion easier.

Several tech companies have indeed worked closely with Visa and MasterCard on money-transfer services in recent years. Both Square Cash and Facebook Messenger’s money-moving service use technology offered by Visa and MasterCard to send or receive money with just a debit card number, according to sources. Google Wallet also uses MasterCard technology, according to MasterCard’s website.

But the pace of innovation is accelerating in the payment-network world outside of the credit card companies. The startup Dwolla, for example, has built its own real-time payments network and has signed a deal with the bank BBVA Compass, letting its customers move money to others in seconds. Automated Clearing House transactions, such as online payments from your bank account, get a bad rap because they take at least a day, but they are getting an upgrade, too. Next fall, some ACH transactions for person-to-person money transfers will begin settling on the same day.

In short, Apple has options. And since Apple is Apple, what it decides will reverberate throughout the industry.

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