Visa and Mastercard's Late Arrival Gives Early Warning an Edge

The mega-banks behind Early Warning's clearXchange network provided a huge base to push the speedy processing necessary for digital payments—but even the biggest banks don't blanket the country as well as Visa and Mastercard.

By enabling debit payments through new deals with Mastercard and Visa, clearXchange more than doubles its reach, bringing real time processing to almost the entire market while striking a counterpunch against nonbank payments ventures.

The deals also make up for clearXchange's agonizingly slow start. JPMorgan Chase, Bank of America and Wells Fargo founded the clearXchange person-to-person network in 2011 but it wasn't until mid-2015 that all three of them were up and running with it.

Meanwhile, nimble competitors from the tech world swept in and filled the void.

"There's a lot of competitors for bank customers, such as Facebook or [PayPal's] Venmo," said Jennifer Rademaker, executive vice president of customer delivery in North America for Mastercard.

The collaboration with Mastercard enables consumers to use Mastercard Send to transfer funds through the clearXchange network. Send is Mastercard's P-to-P debit service, covering about 97% of the U.S. debit market. Early Warning has also entered a similar deal with Visa's version of this service, called Visa Direct.

The network collaborations in effect turn clearXchange from a closed-loop system into an open system. ClearXchange's bank owners reach about 100 million online banking and 70 million mobile banking users, or just more than half of the market. The Visa deal alone instantly vaults that coverage to about 200 million debit users, combined with Mastercard's 97% coverage.

"For person to person, that coverage is the important part. If you're going to send money to the person who walks your dog, that person's bank doesn't have to be a clearXchange bank," Rademaker said. "Now you can send money to virtually anyone with a debit card."

For the banks behind clearXchange, the advancement of payments technology in other venues prompted an aggressive response to validate their quest to put bank power behind the nationwide push for faster payments.  

"Ubiquity has always been a prime directive to get as many consumers as possible," said Lou Anne Alexander, group president of payments for Early Warning, adding the collaboration with the card networks does not change clearXchange's broader bank-led model. "We are still building our bank network."

The user experience for debit will remain the same as that for standard clearXchange transactions, Alexander said, adding any fees or other conditions will be determined by the banks. Alexander would not comment further on terms of the Visa or Mastercard deals. Visa did not answer a request for comment by deadline.

Nonbank players like Facebook are inking deals with app companies like Uber, and PayPal just made Venmo available for in-app purchases. These initiatives, along with the steady advance of Apple Pay, Android Pay and Samsung Pay, threaten banks' ability to forge lifelong relationships with consumers while they are young, according to Filippo De Montis, director of global industry solutions for banking and insurance for Software AG. And McKinsey has reported that banks must match the experience of the non-bank challengers while incorporating payments into their digital offerings.

"The big winner here is Visa Direct," said Richard Crone, a payments consultant, noting it adds to the influence Visa obtained in its recent pact with PayPal, which it previously considered a rival.

PayPal's Venmo succeeded due to its dual identity as a social network; its app enables users to interact and comment on any transactions that go through it. It's a significant differentiator for a service which, under the hood, is little different from what the banks offer, Crone said.

"Venmo and clearXchange both have access to Visa Direct, so they are both on equal footing," Crone said. "But clearXchange doesn’t have the social component."

Early Warning, which has roots in bank-led risk management, merged with clearXchange in 2015, in part to bolster the network's ability to offer other financial services besides P-to-P transactions. Bank of America has already added corporate payments to the clearXchange rails, and banks behind clearXchange envision it as a portal for insurance claims, government payments, and other business-to-consumer transactions.

All of these goals are facilitated by making the network more open, Rademaker said. "There's a lot of applications beyond P-to-P, such as dispersing funds, that can benefit from this."