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.