Big US banks to take on tech ri­vals with in­stant pay­ments

The Pak Banker - - FRONT PAGE -

De­pos­i­tors at some of the largest U.S. banks are fi­nally go­ing to get the chance to do some­thing quick and sim­ple: send money to an­other per­son's ac­count in­stan­ta­neously by mo­bile phone.

The idea has been in the works for at least five years, and in the mean­time, Sil­i­con Val­ley has made in­cur­sions into the in­dus­try's role as a pay­ment in­ter­me­di­ary. But now, big banks in­clud­ing JPMor­gan Chase & Co, Bank of Amer­ica Corp, Wells Fargo & Co and U.S. Ban­corp are start­ing to plug into a sys­tem they jointly own, called clearXchange, that will al­low each oth­ers' cus­tomers to trans­fer money in a flash when they split a din­ner check, rent pay­ment or va­ca­tion bill.

"What we are do­ing now is de­liv­er­ing pay­ments in real time, which is what our cus­tomers have asked for," Mary Har­man, man­ag­ing di­rec­tor for pay­ments at Bank of Amer­ica, said in an in­ter­view. The bank is one of two that have started rolling out the sys­tem to cus­tomers.

While tech­nol­ogy com­pa­nies like PayPal Hold­ings and Face­book Inc al­ready of­fer snazzy pay­ment apps that ap­peal to young con­sumers, the bank­ing in­dus­try has a cru­cial ad­van­tage be­cause it con­trols how quickly money ac­tu­ally moves be­tween bank ac­counts. In­di­vid­u­als trans­ferred some $200 bil­lion to one an­other us­ing mo­bile phones and com­put­ers last year, ac­cord­ing to Javelin Strat­egy & Re­search.

Bank ex­ec­u­tives and an­a­lysts who closely track pay­ment sys­tems say that if clearXchange is fast, func­tional and user-friendly, banks can make up for lost ground.

Bank of Amer­ica plans to an­nounce on Wed­nes­day that its cus­tomers can trans­fer funds in­stantly through clearXchange with cus­tomers of U.S. Ban­corp, which said last week that it was plugged into the speed­i­est part of the net­work. JPMor­gan Chase & Co and Cap­i­tal One Fi­nan­cial Corp rep­re­sen­ta­tives told Reuters they plan to of­fer the ser­vice later this year.

An­a­lysts ex­pect Wells Fargo & Co and PNC Fi­nan­cial Ser­vices Group Inc to do the same. Their rep­re­sen­ta­tives de­clined to com­ment.

Those six banks are among the seven largest by de­posits in the United States. Re­gional bank BB&T Corp is also one of the seven own­ers of the net­work, but is not ready to an­nounce its plans, a spokesman said.

Cit­i­group, which has the fourth most U.S. de­posits, has not joined clearXchange. A spokes­woman de­clined to say why. Cit­i­group uses an older net­work called Pop­money, which is owned by Fis­erv Inc, for per­son-to-per­son pay­ments.

To­day, if a cus­tomer wants to trans­fer cash to an­other per­son dig­i­tally - whether on an app like Paypal's Venmo, or through an in­di­vid­ual bank's pay­ment trans­fer sys­tem, like Chase's Quick­Pay - it usu­ally takes one to three days for money to move to an ac­count at an­other in­sti­tu­tion. On clearXchange, the cash can move in­stan­ta­neously with the tap of a fin­ger.

The ini­tia­tive is par­tic­u­larly im­por­tant for banks as their cus­tomer base shifts from a gen­er­a­tion that cashed pa­per checks and got mort­gages by walk­ing into a branch, to one that goes on­line first to trans­act and bor­row. It's im­por­tant for banks to cater to 18-to-34-year-old Amer­i­cans in the so-called Mil­len­nial gen­er­a­tion as they en­ter their prime years for bor­row­ing and sav­ing.

But adapt­ing to th­ese be­hav­ioral changes was a low pri­or­ity for U.S. banks af­ter the fi­nan­cial cri­sis, as they grap­pled with losses, fines, new reg­u­la­tions and slow rev­enue growth. In short or­der, fi­nan­cial tech­nol­ogy star­tups filled the void - not just in pay­ments, but in ar­eas rang­ing from stu­dent loans to fi­nan­cial plan­ning. If banks don't catch up quickly, they may end up los­ing some young cus­tomers al­to­gether, an­a­lysts said.

"There is a short win­dow of op­por­tu­nity for the banks," said Michael Moeser, di­rec­tor of pay­ments for Javelin.

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