There is a lingering fear that enabling real-time transfers between consumer bank accounts will open a window for fraud that cannot be closed.
But as demand for real-time payments grows, two consortiums led by large banks hope to address the banking industry's fraud concerns by developing an interoperable identity shield.
"Risk management has always been an achilles heel that limits use cases and availability of funds," said Paul Finch, CEO of Early Warning, a bank-owned risk management operation. Early Warning announced Tuesday that it had closed its acquisition of clearXchange, the country's largest financial institution-led payments network.
The deal, which was initially announced in October, actually closed Dec. 31, making Tuesday's announcement more of a public unveiling. The combined entity is performing pilots to examine different ways the combined entity's fraud and transaction technologies can enable "faster payments" and other products, Finch said, adding real-time payments can boost banks' overall embrace of innovation.
"As financial institutions of all sizes search for innovative services to add to their digital offerings, real-time payment solutions will be a powerful tool to keep banks and credit unions at the forefront of payments while making a meaningful difference in the financial lives of their customers," Finch said.
ClearXchange began as bank-led effort to make person-to-person payments easier by promising a hefty built-in scale; its founding members, JPMorgan Chase, Bank of America and Wells Fargo, claimed more than half of the U.S. online banking market. Early Warning is a risk management collaboration owned by Bank of America, BB&T, Capital One, JPMorgan Chase and Wells Fargo; the combined entity covers close to two-thirds of the digital banking market in the U.S.
The initial phase of the combined initiative's real-time platform will go live with banks during the first quarter and will enable real time P-to-P payments and check deposits. These use cases will likely expand based on the organization's existing relationships. ClearXchange has added government and corporate payments, while Early Warning has teamed with Fiserv to add scale for deposit accounts and bill payment services.
"Person-to-person payments is an important market and growing, but if you think about faster payments in general, along with the Fed initiative, it's broader than just P-to-P," Finch said. The consortium's goals are to bring ubiquity, safety and soundness and a common user experience to its services, he added.
Security and identity management are a large part of the strategy, and Early Warning will integrate its risk tools into the payments platform to protect immediate funds availability. These are among the most important concerns for consumers using digital payments and real time payments will never achieve widespread adoption without making clear assurances about security, Leach said.
"With authentication you can bring broad visibility into the people and status of accounts, and you can begin to expand the network quickly," Finch said.
It's both refreshing and timely for a payment product to differentiate through security, said Al Pascual, senior vice president and research director at Javelin Strategy & Research.
"Security is critical for the development and subsequent adoption of P-to-P payments, along with faster payments," Pascual said. "From a consumer perspective, whenever financial technology is introduced the top impediment to adoption is security and rightfully so."
Apple, for example, emphasized security in its product pitch, but guarding the front door with fingerprint recognition wasn't enough to prevent fraudsters from making headlines by exploiting the mobile wallet's enrollment process.
"Integrating Early Warning's capabilities with clearXchange brings the very kind of holistic, strong authentication needed and expected of a P-to-P network relied upon by the country's largest financial institutions," Pascual said, noting that Early Warning's ownership of Authentify and partnerships with Payfone and Biocatch will bolster that strategy.
Ubiquity will be a challenge. Early Warning and clearXchange's participants, while notable in scale, do not cover the entire market, and there are many P-to-P competitors. PayPal/Venmo, Snapchat and Facebook each offer P-to-P alternatives; and within the financial services industry, BBVA, COOP Financial and Shazam are building real-time transfer systems.