clearxchange Archives

Venmo, behind you: incumbents are taking on P2P startups

It was only a matter of time, really. Though peer-to-peer payments have primarily been the focus of fintech startups, incumbents are delving into this market via clearXchange, a white label P2P payment platform for financial institutions.

Instead of developing a P2P payment product in-house, 5 of America’s top banks (including Chase and Bank of America) have signed up to the clearXchange network. So far, customers can only send money to other of the bank’s customers via the platform, but eventually they’ll be able to send to family and friends who bank elsewhere.

Chase’s Jamie Dimon famously said that he expects to win at payments; Chase’s integration of clearXchange into its existing banking apps is one indication of just how they’re planning to do that.

Turning non-customers into customers with mobile apps

It’s tough to market a bank – especially when so many millennials have lost faith in financial institutions. A new marketing tack that banks are testing out is a line of mobile services aimed at non-customers. The idea is that these mobile apps will cultivate more frequent, deeper engagements with non-customers, which will eventually lead to converting them into customers.

Whether this mastermind marketing plan will yield the desired results remains to be seen. In the meantime, ZEO, TCF Bank’s suite of services offered to all humans (customers and non), has been a big hit with existing customers – this in itself could entice more non-customers to the platform and to the bank itself.

Roboadvisors are a game changer, but at what cost?

This week, Betterment became the first independent roboadvisor to surpass $5 billion in assets under management. Well done, Betterment, but beware: this is also the week in which a report on the just how unprofitable roboadvisors are went live.

The report by UK asset manager Alan Miller was (wrongly, we think) largely ignored by the media, but its findings demonstrate that roboadvisors’ business models are extremely problematic: it can take up to 11 years for a roboadvisor account to become profitable, and a UK robo spends an estimated £2,794 over the life of an account.

This might not be a big deal for incumbents who have spun off or acquired a robo, but for smaller robo independents, these costs could be a long-term death sentence.

Regulation technology is coming into its own

Whether you’re an established incumbent or a hopeful startup, the double whammy of state and federal financial regulations can be overwhelming. Luckily, there’s tech for that: meet regulation tech (better known by its stage name, regtech).

Though it might not be the sexiest technology, regtech helps companies of all sizes from across the finance industry jump through flaming bureaucratic hoops, such as registration requirements, license fees, training requirements, and staffing rules. Tradestreaming’s Gidon Belmaker lays down the regulation challenges finance companies are facing and pinpoints the top 10 regtech companies that are steadily gaining momentum.

Globalization is speeding along multi currency solutions

Brexit aside, globalization has allowed more people than ever before to spend and shop in foreign currencies. This trend has obviously led to an increased demand for online and mobile money exchange solutions, and the UK fintech mavens haven’t disappointed:

Revolut, launched in 2013, is a multi currency payments platform that enables you to exchange, send, and spend your money while avoiding foreign banking fees without using a bank. The Revolut app, combined with a prepaid MasterCard, lets users load money from the bank account in their domestic currency and spend it in 90 different currencies across the globe – including bitcoin – at the interbank rate. Revolut just raised over $8 million from big-name investors and also has raised more than $11.7 million through pledges via a crowdfunding campaign.

Perhaps following a frustrating experience of returning from, say, London, with 20 pounds and nothing to do with them, WeSwap, a P2P platform, is touting cheaper travel money for all with its app that enables travelers to directly swap currencies with one another. The company is fresh off a $10 million funding round, and its CEO is confident that English fintech can prevail in spite of the Brexit referendum.

Quietly over the past few months, some of the largest US banks have rolled out real-time P2P payment functionality in their banking apps. Now, 5 of the largest US banking institutions, including Chase and Bank America, enable their customers to send and receive money in real-time to one another and eventually, to friends and family who hold accounts at other banks.

Instead of building their own solutions, participating banks have signed up to the clearXchange network, a white label P2P payment platform that has facilitated non-real time P2P payments for banks since it was founded in 2011. After inking deals with leading banks, P2P payments on the clearXchange network are now available to more than 100 million online banking and 70 million mobile banking users in the U.S.

In the first quarter of 2016, customers at banks in the clearXchange network completed more than 46 million P2P transfers, accounting for over $16 billion in combined transaction volume. That number is expected to grow as banks already on the network ramp their marketing of p2p capabilities, and more banks sign up for the service.

P2P startups facing down a speeding train

Before clearXchange, it wasn’t easy to send payments across banks. A whole industry of P2P payment players has sprung up to help bridge this gap by putting a transaction layer on top of existing banking infrastructure. As a workaround to directly moving money between bank accounts, technologies like PayPal and its faster growing service, Venmo move money between stored value accounts. So, while payments may be instantaneous, it can take days for the receiving party to be able to access that cash directly from her bank account, as money moves from the P2P platforms into the banking system.

clearXchange changes all that. Banks on the network are active participants this time, enabling payments to move freely between banks at the account level. clearXchange’s parent, Early Warning, is owned in part by seven of the largest banks in the U.S. Early Warning has been around for 25 years, providing thousands of banks and credit unions across the country with risk, fraud prevention, and authentication solutions.

“The involvement of our owner banks gives Early Warning’s clearXchange network a very large footprint in the U.S.,” Lou Anne Alexander, Group President, Payments, at Early Warning emailed Tradestreaming. “The expansive reach of our network is appealing to financial institutions interested in bringing person-to-person payments to their customers since they know their customers will instantly be able to reach a substantial population.”

Early Warning’s clearXchange lets banks compete head-on with newer entrants like Venmo. And because it’s a technology solution, clearXchange integrates into the existing banking apps its clients have already developed. Users don’t need to download a separate app to access the payment functionality.

It’s not easy getting everyone to play together

clearXchange is a network and joining the network becomes more valuable when they’re more banks on the network.

“As more financial institutions join the clearXchange network, it will become increasingly useful and valuable to consumers who will be able to send and receive real-time payments with each other,” said Alexander, who also held senior payment and innovation roles at Wells Fargo and Wachovia. “As it grows in scale, I expect a substantial amount of payments that are currently made with cash and check to migrate to clearXchange.”

Consortium efforts can pay off massively, but they’re hard to pull off. Just look at the Merchant Customer Exchange, or MCX, a retail industry consortium that wanted to do an end-around of the credit card networks. Tired of paying interchange fees, companies like Walmart and Target worked for years to roll out a mobile payments solution, dubbed CurrentC. Walmart ended up launching its own payments, Walmart Pay. MCX announced layoffs in May and its future is uncertain.

Ramping up the network

For now, clearXchange network banks are working on customizing marketing programs that encourage mobile adoption, including P2P payments. JPMorgan Chase’s CEO, Jamie Dimon famously said that he expects to win in payments. Chase is an Early Warning client.

“Financial institutions are eager to respond to the growing customer demand for the convenience that P2P payments offer,” said Early Warning’s Alexander.

Photo credit: tj013579 via Visual hunt / CC BY

Tag: clearxchange

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