The New BofA-Wells-Chase P2P Service Courts Potential Partners

The bubbling person-to-person payments market boiled over Wednesday when mega banks Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co. announced a joint P2P service dubbed clearXchange. While currently limited to the banks’ customers, clearXchange could be integrated with other P2P systems, and possibly even become a payment option for merchants.

Citing research from Aite Group LLC, Mike Kennedy, clearXchange’s chairman, notes that consumers pay each other an estimated $865 billion a year in 11 billion transactions, most of which are by cash or check. But consumers are now interested in doing such transactions electronically and will use their checking accounts if they can be assured of convenience and security, says Kennedy, executive vice president and head of payments strategy at Wells. “We said that is something we would want to be able to do,” Kennedy tells Digital Transactions News. He adds, citing research from comScore Inc., that the three banks have about half of the nation’s online banking customers.

The banks began talking about 18 months ago and quietly launched clearXchange in April in their test market of Arizona, with another market to go live soon. Nationwide availability will be complete in about a year, according to Kennedy. The banks are offering the service free in 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.

“Each of the banks will have the customer front-end,” says Kennedy. On the back end, “We will utilize clearXchange as the air traffic controller.”

But clearXchange may not remain a semi-closed system for long. Kennedy says that in the interests of broadening the sender and recipient pool as much as possible, clearXchange has started “to contact other players in the industry.” He wouldn’t identify any, but one firm that says it had a chat with clearXchange is New York City-based CashEdge Inc., provider of the Popmoney P2P service now used by 200 banks. “We are very excited about this,” Neil Platt, CashEdge executive vice president and general manager of banking and payments. “We’ve been kind of preaching the value of bank P2P payments for a long time.”

CashEdge recently struck a deal with Visa Inc., and its Popmoney clients include eight of the top 30 banks. The biggest are Citibank, PNC, and U.S. Bank. “They [clearXchange] asked us about conversations to begin integrating Popmoney into that platform,” says Platt.

Leading bank processor Fiserv Inc., provider of the ZashPay P2P service and which has its own deal with Visa, said in a statement from Electronic Payments Division president Tony Catalfano that clearXchange’s announcement “is positive news. It is not only an endorsement for the personal-payments category as a whole, but it also validates the financial institution-centric approach that Fiserv believes is best for these types of payments.” Fiserv says 800 banks and credit unions have signed on to offer ZashPay and 700 are live.

ClearXchange would seem to keep banks relevant at a time when many bankers worry that tech newcomers and established alternative-payments providers such as PayPal Inc. are encroaching on their turf. “To me the bank-centric issue is so important,” says George Warfel, consulting director of global payment solutions at Fiserv. “I just think the industry has woken up.” (Warfel says he doesn’t know if clearXchange has approached Fiserv.)

But PayPal, the P2P leader, says banks like the services it provides them. “In the U.S., hundreds of banks and credit unions are partnering with PayPal to make it easy for their customers to send money to virtually anyone around the world,” Dan Schatt, PayPal’s head of financial innovations, said in a statement. “We believe that we have unmatched advantages, including state of the art anti-fraud capabilities, connections to more than 15,000 banks around the world, and the more than 98 million people in 190 global markets who trust PayPal as the way to send and receive money.”

While much about clearXchange isn’t known yet, what has been revealed suggests the system could be adapted for consumer-to-business payments. That’s not the plan currently, according to Kennedy, but he left open the possibility. “Right now we’re focused on launching P2P …,” he says. “In the future we may expand that to other use cases.”

Of course, using clearXchange for merchant payments raises a host of questions, including pricing and the potential for undercutting the banks’ payment card revenue streams. Still, the banks might do well to consider clearXchange’s merchant potential as mobile payments take shape, says George Peabody, director of the Emerging Technologies Advisory Service at Mercator Advisory Group Inc. “You can do a lot more than P2P,” he says. “The fat part of the market isn’t P2P.”

ClearXchange will be based in BofA’s home town of Charlotte, N.C., with BofA senior vice president John Feldman serving as general manager.

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