The new person-to-person payments company launched by three top banks may not be a PayPal-killer, but experts say the clearXchange venture is a clear threat to the dominant bank-focused payments services.
Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. on May 25 announced the joint venture, which will enable their customers to send money electronically by inputting a recipient’s email address or mobile phone number at the banks’ websites. Funds move via the automated clearinghouse network.
Though clearXchange’s service resembles that of eBay Inc.’s PayPal, its bank ties put it in closer competition with offerings such as Fiserv Inc.’s ZashPay and CashEdge Inc.’s Popmoney, which are offered through bank websites. Both companies are downplaying the potential competition that clearXchange poses but analysts say they should take notice.
“The immediate threat of that initiative I think is clearly … for CashEdge,” Gwenn Bezard, a research director with Aite Group LLC in Boston, says. “It is clearly a threat for ZashPay, anyone who has a P2P solution like CashEdge, like ZashPay that is selling to banks … that is going to be a major threat for them.”
Emmett Higdon, the founder and principal of payments consulting firm Prizm Strategy in Charlotte, N.C., agrees.
“This is bigger news for those guys than it is for PayPal,” Higdon says. “Ultimately for both of these services to survive, there’s got to be interoperability between the services.”
While clearXchange’s service is initially available only to customers of its owners, its executives said they plan to offer the service to other banks, which would pay transaction fees for using it.
“We’ve been focused, up until very recently, on getting the company launched … knowing that our goal was always to make this available” to other banks and network operators, says Michael Kennedy, chairman of the Charlotte, N.C., venture and head of payments strategy at Wells Fargo.
Executives at Fiserv and CashEdge say they view the formation of clearXchange as validation that the “bank-centric” approach to P2P payments is on the right track.
“I’m not saying it’s not a form of competition,” says Erich Litch, president of digital channels at Fiserv. “Competing against an entity that is entirely controlled by a group of banks as a joint venture is something we’ve actually done many times in the past.”
CashEdge and one of its clients say the clearXchange launch may actually prove to be beneficial for them.
Neil Platt, executive vice president and general manager of banking and payments at CashEdge, says CashEdge and clearXchange have discussed integrating their services in the future.
“It’s not about competition between the application provider, which is us, and a couple of large banks forming their own network, which is what clearXchange is,” he says.
Mac McCullough, chief strategy officer for U.S. Bancorp, a CashEdge Popmoney client, declined to comment on clearXchange specifically but says that “any capability that is more broadly introduced to the market just makes it better for all of us.”
Bezard and Higdon say that despite the threat clearXchange poses, it could choose to grow its user base by integrating with its rivals.
“One of the reasons why PayPal has been so successful has just been the utter vacuum of options that consumers have had when it comes to P2P payments,” says Higdon, a former Citigroup Inc. payments executive who worked on the bank’s c2it service, which it offered in the early 2000s as a direct competitor to PayPal. Citi, which today is a CashEdge Popmoney client, ultimately shut down the service.
For the “longest time … consumers really haven’t had choices,” Higdon says.
Dan Schatt, head of financial innovations at PayPal, says the clearXchange announcement “is yet another sign that the traditional payment industry’s model is looking more and more like PayPal’s.”
Bank of America and Wells Fargo began rolling out clearXchange to certain customers in Arizona in late April. JPMorgan Chase will begin making it available to customers soon, and the three banks will gradually roll the service out during the next year, Kennedy says.
Bank of America and Wells Fargo are currently offering the service for free, though the banks could charge customers for the service, says John Feldman, the general manager of clearXchange and a former Bank of America executive.
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