E-Commerce: A Blurry Picture for clearXchange

 

It was announced with considerable fanfare almost a year ago, but since then little has been heard about the person-to-person payment service created by three of the nation’s top banks. Is clearXchange at risk of falling behind the competition?

By Linda Punch

When three powerhouses in financial services and payments last May announced a joint person-to-person payments service called clearXchange, the industry sat up and took notice. After all, the mega banks—Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co.—are famous for their innovations in both banking and payments.

 

But almost a year later, there has been little news about clearXchange, even as competing bank-related P2P systems operated by leading bank processor Fiserv Inc. and e-commerce giant PayPal Inc. continue to forge new partnerships and introduce upgrades in service.

 

In an appearance at a conference last month, clearXchange general manager John Feldman was a “study in silence,” says Aaron McPherson, practice director of financial services at Framingham, Mass.-based IDC Financial Insights.

 

In March, Brookfield, Wis.-based Fiserv announced it is combining its own ZashPay network with the Popmoney platform created by CashEdge Inc., which Fiserv acquired in 2011 for $465 million. The new, conjoined network will link 1,400 financial institutions.

 

Meanwhile, PayPal has been selling its P2P processing service to banks and payments networks ever since it opened its platform to outside developers late in 2009. A year ago, Discover Financial Services became the first card network on the platform. And in November PayPal introduced a widget that lets users transfer funds using their handsets and near-field communication (NFC) technology.

 

ClearXchange officials are tightlipped about progress in setting up the service, with Feldman saying only that the clearXchange platform is operational and is “in phased rollouts” among the three owner banks.

 

The program may be encountering difficulties because of recent management changes at the three sponsor banks, McPherson says.

 

“When there’s management turnover or re-org, the new team might not agree with the strategy the old team put in place,” he says. “They may not want to repudiate it yet [because] they may see some value in maintaining the technology that’s been built.”

 

The network is “in conversations” with other potential participants, Feldman told this magazine’s sister publication, Digital Transactions News, last month at the Bank Administration Institute’s Payments Connect Conference in Las Vegas. “This [clearXchange] was created to be a catalyst for interoperability,” he said. “This wasn’t meant to be just the three banks.”

 

But Feldman declined to give any details about talks with other banks, citing non-disclosure agreements. “We’re the most NDAed organization out there,” he joked.

 

‘Late to the Game’

 

Despite the market power of clearXchange’s founders, the “gradual ramping up” of the system among the three owner banks could mean Charlotte, N.C.-based clearXchange will be left behind in the P2P competition among banks, says Beth Robertson, director of payments research at Pleasanton, Calif.-based Javelin Strategy & Research.

 

“They need to get their functionality to a more advanced place before they then start reaching out to other organizations,” Robertson says, noting that the P2P systems that formed the basis for Fiserv’s service “have reasonably sophisticated capabilities and between the two have a number of banks working with them.”

 

“If clearXchange wants to get other banks involved, it needs to have competitive functionality,” Robertson says. And, she says, potential bank clients already may be signed by competitors before clearXchange hits its stride.

 

Banks and non-banks alike are interested in P2P payments for a number of reasons. For one thing, banks would like to chip away at the costs of paper processing. Between 2006 and 2009, the consumer-to-consumer category was the only type of check that grew in volume.

 

At the same time, P2P platforms hold the potential of generating nice returns for their owners, if they can figure out the right pricing and service model. Most experts figure consumers will pay something for the convenience of sending funds to other individuals electronically. Getting that model right, however, has been an elusive goal over the years.

 

BofA, Chase, and Wells Fargo began talking about forming a joint P2P service more than two years ago and quietly launched clearXchange in April 2011 in the test market of Arizona. To send a payment to another person, a BofA, Wells, or Chase customer using a computer or mobile phone needs only the e-mail address or cell-phone number of the recipient, who also must be a customer of one of the three banks.

 

The sender logs into his online-banking site and clicks on a tab for transfers. He enters the recipient’s name or e-mail address, enters the amount and a short message, and then hits “send.” The system finds the recipient’s routing/transit number and account number. Funds are sent as automated clearing house credits.

 

While BofA, Wells, and Chase plan to roll out clearXchange to other banks, “they did come late to the game,” Robertson says. And none of the three banks, large as they are, has a presence in every market, thus limiting the network’s attractiveness to potential bank participants. For example, in markets where only Chase has a presence, only one of the consumers in a transfer might have a Chase account.

 

“It’s more advantageous as a consumer to have a network that’s more ubiquitous and if you’re going to be transferring to other people that’s probably the biggest limitation right now—it’s just three banks,” Robertson says.

 

ClearXchange also might be having difficulty in signing banks “because smaller banks worry about giving up customer information to potential competitors,” McPherson says.

 

“That is why third parties like PayPal and Fiserv tend to do better because they’re seen more as honest brokers,” he says. “Banks may not like PayPal but PayPal isn’t going to be favoring any one of them.”

 

Both PayPal’s and Fiserv’s systems have a much broader pool in terms of number of participants, Robertson adds. “The services that reach the most individuals would be the ones that are most desired,” she says.

 

‘Powered by PayPal’

 

Indeed, clearXchange has some hard work ahead if it’s going to catch up with either PayPal or Fiserv.

 

PayPal has signed “hundreds of banks” globally to its Send Money for Financial Institutions service, Dan Schatt, general manger of financial innovations for PayPal, says in an e-mail message. PayPal has about 106 million active users.

 

“PayPal is working with banks of all sizes—from larger banks like USAA to credit unions like TechCU,” Schatt said. “The Send Money for Financial Institutions product is flexible and customizable so the banks can bring easy, secure, and reliable P2P transactions to their customers in any way they want.”

 

Two bank-solution vendors, Fidelity National Information Services (FIS) and S1 Corp., develop P2P processing services for PayPal’s platform.

 

PayPal’s Send Money service offers “state-of-the-art anti-fraud capabilities, connections to more than 15,000 banks around the world, and more than 106 million people in 190 global markets,” Schatt says. Users can send money to people in more than 60 countries with an e-mail address and more than 10 countries with a mobile-phone number. The recipient receives the funds instantly.

 

One of PayPal’s high-profile clients is Discover, whose Money Messenger service allows cardholders to send cash to anyone with a PayPal account. Recipients who aren’t PayPal customers can set up an account quickly via a streamlined process.

 

With the service, senders initiate transactions with a recipient’s e-mail address or mobile-phone number. Transactions show up on senders’ statements as if they were ordinary purchases and count towards rewards points. Funds are available to payees immediately, with PayPal fronting the cash and then waiting for settlement via the automated clearing house network.

 

Banks seek out PayPal’s Send Money service “hoping to drive customer engagement [and] acquisition and increase revenue,” Schatt says. “We work closely with them to give them the tools to customize a P2P experience that’s ‘powered by PayPal’ and meets the needs of their business.”

 

‘A Hybrid’

 

While PayPal continues to add bank partners, Fiserv also is making strides in building market share and expanding service offerings. Fiserv said it was buying CashEdge for its full list of products, including technology to facilitate account-to-account transfers, account openings, small-business payments, and other services.

 

Now, the combined Popmoney network, which will be integrated into Fiserv’s CheckFree RXP payment suite, will have access to 35 million consumers through existing online and mobile-banking relationships, Fiserv says. The CheckFree RXP payment suite is in use at 3,600 financial institutions.

 

All clients will be upgraded to the enhanced Popmoney product and network by June 9, says Tom Roberts, senior vice president of marketing for the CashEdge division of Fiserv.

 

The combined network includes major U.S. financial institutions such as Citibank, PNC Bank, Regions Bank, Fifth Third Bank, and BBVA Compass, in addition to more than 1,300 regional and community-based institutions. “The scale of the network is quite substantial and it gives us more momentum and runway to increase the size of the network,” Roberts says.

 

Fiserv selected the Popmoney brand for the combined network because larger institutions already were “aggressively” promoting the name in regional and national ad campaigns, including Citibank and Ally Bank, Roberts says. “Popmoney was gaining a little more consumer awareness than ZashPay had,” he says.

 

The restructured Popmoney network is a hybrid comprising the best features of both networks, Roberts says, declining to give details.

 

Under the combined network, customers will send money directly from their bank accounts to another person using the other person’s bank-account number, e-mail address, or mobile-phone number. Previously, customers could send money using an e-mail address or mobile number. Transactions typically clear and settle through the ACH network.

 

Fiserv says it added the bank-account credential after hearing from some customers that they preferred using it in scenarios like sending money to a child at college. Customers also will be able to schedule recurring payments and future-dated payments, such as rent to a private landlord, using Popmoney.

 

The enhanced Popmoney will be easier to use and includes advanced functionality, such as the ability to request money from individuals or groups, import contacts from Yahoo, Hotmail, and Gmail e-mail to a payee list, and send e-greetings along with electronic cash. In addition, the new Popmoney cuts down on the number of steps needed to complete a transaction.

 

Both Fiserv and CashEdge have been signing P2P deals with major industry players such as Visa Inc., which offered both services.

 

‘Greater Ubiquity’

 

With the breadth of features offered by Popmoney and the global customer base provided by PayPal, cashXchange will be hard-pressed to catch up. And it is unlikely that any other bank-initiated services will appear on the scene, Javelin’s Robertson says.

 

“Other banks would be more likely to join one of the other existing networks because the goal in the end is to drive toward greater ubiquity,” she says. “The only way you can do that is having a network that reaches a large portion of banks.”

 

But there may be hopeful signs for clearXchange. Some experts argue that, while clearXchange will be competing with Fiserv and PayPal for the loyalty of banks, it will be seeking to serve a somewhat different market.

 

McPherson, for example, argues that clearXchange is targeting payments among friends and family members, while PayPal is more interested in payments from businesses to consumers and Fiserv is focused on group payments.

 

ClearXchange is “really about sending money from one individual to another,” McPherson says.

 

That points the way to cross-border remittances, which represent a big opportunity for clearXchange, McPherson says. But here the nascent network’s luck may run out. “They’re up against Western Union and that’s really tough,” he says. “Banks have been trying to go after Western Union for years now and have never really gotten much traction.”