A forthcoming joint payments venture between Wells Fargo and Bank of America, through which both banks will share a platform to process their automated clearing house transactions, continues to percolate debate.
Nearly a year after both banks announced the partnership, dubbed Pariter Solutions, many payments industry observers and bankers are still on the fence on whether by next year a massive centralization of two of the nation's largest ACH originators — while good for cost benefits between the two partners — would eventually wring the efficiency out of ACH for rest of the industry.
Insiders like George Thomas, a former executive with the Clearing House Payment Co.'s Electronic Payment Network — one of the industry's two ACH processors, along with the Fed — have warned that Pariter might evolve into a mammoth bilateral model that could divert billions of payments from the ACH network. That would add massive costs to other institutions that depend on the network to clear more than 18 billion interbank transactions a year, says Thomas.
Others, including Pariter officials, take pains to note there are no plans in the works — nor even a viable business case to make — for the banks to share "on-we" settlement (the direct clearance of ACH transactions). Nor do Pariter officials currently see a way to support third-party settlement services that would compete with the EPN or FedACH. "The numbers we're associating with an 'on-we' exchange was not a driving force," in the venture, says Pariter CEO Stephanie Sturgis-Griffin. "The value and the bulk of the platform is end-to-end, core ACH processing" that creates "reduced unit costs and shared investment."
"The rest of industry blew it up into this giant organization that is going to do all these different kinds of things," says Mitch Christensen, head of strategic planning for Wells Fargo's Enterprise Payments Strategies and a key planner of the Pariter launch. "We've been trying to help people understand that's not the intent."
But intent aside, Pariter does not close the door on ever creating direct-send capabilities or third-party settlement. "Never is a really long time," says Sturgis-Griffin.
Thomas notes that economies of speed can provide crucial benefits in direct send relationships, such as in same-day ACH transactions. If Pariter or another firm with ACH settlement capabilities, such as image archiving company Viewpointe, decides to bypass the network to offer such services, that would be a "significant blow" to the system, says Thomas.
Some analysts, though, doubt the "on-we" volume of Pariter — now including Wachovia's volume in the Wells Fargo slice — would impact pricing.
Nancy Atkinson, a senior analyst with Aite Group, asks how much of Pariter in-house volume is "truly 'on us,'" since billions of other payments would still be going out or coming in from other institutions. "My guess would be 10 percent or less [as "on-we"]," she says. "And are we assuming there will be no growth in ACH transactions?"
What may be more likely is that Wells and BofA, both stakeholders in EPN, are more focused on competing with JPMorgan Chase, according to Atkinson. In NACHA's 2007 list of top originators, BofA, Wells and Wachovia combined for more volume (3.6 billion transactions) than No.1 originator JPMorgan Chase, at 3.4 billion.
Still, the growth of bilateral direct-send deals such as those cut by Citigroup and Capital One with certain institutions, could impact other areas of the network commons. NACHA's ability to enforce network rules and risk management practices could also be weakened. Speed bumps might slow ACH network plans to capitalize on the growth of native (or non check-related) electronic transactions just getting off the ground, like e-billing, A2A payments, and direct deposit. EPN has touted record levels of use for its UPIC payment service that lets companies make B2B payments over ACH, and NACHA has piloted its Secure Vault Payments service that, as a competitive lob against PayPal and other alternative intermediaries, lets consumers make online payments through a bank's Web site.
Pariter "has a huge impact on the smaller banks, and smaller doesn't necessarily mean small," says Susan Feinberg, senior research director with TowerGroup. "I'm talking about banks outside the top five."