Capital One Buys Into Big Banks’ clearXchange P2P Payment Service

Card issuer and bank Capital One Financial Corp. has bought into the clearXchange person-to-person payment company, becoming the fourth owner.

Founded in 2011, clearXchange was started by Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co., with the idea of leveraging a consumer’s existing relationship with a bank, one that the consumer tends to trust well, says Mike Kennedy, clearXchange chief executive. Lakewood, Colo.-based FirstBank joined clearXchange in 2013, but is not an owner.

“Capital One is focused on bringing its customers innovative products and services that allow them to spend wisely and transact easily—when, where and how they want,” Jack Forestell, executive vice president of digital at Capital One, said in a press release.

Nationally, clearXchange banks represent more than 50% of the consumer online-banking market, the company says, counting more than 85 million-online banking users. Kennedy would not disclose any data about the number of clearXchange users or their transaction activity.

“It’s all about the customer,” Kennedy tells Digital Transactions News. “Customers have said that when it comes to financial transactions they want to work with their banks. They don’t want to provide their bank account numbers to a third party.” Capital One says it has approximately 65 million customer accounts, including credit cards, auto loans and retail banking.

To use clearXchange, a sender using a desktop computer, laptop, or mobile device needs only to enter the recipient’s email address or mobile-phone number. If the recipient’s account is part of the clearXchange network, the payment will be deposited to her account, assuming she has associated her email address or phone number with the bank account.

Currently, none of the banks in the clearXchange system charge users for the service, Kennedy says. ClearXchange, however, charges the banks a fee. Kennedy would not disclose that fee.

ClearXchange, however, is not the only P2P payment provider. Financial services provider Fiserv Inc. launched its Popmoney service last year. And Fidelity National Information Services Inc., a Jacksonville, Fla.-based processor, offers People Pay, a similar service, as does Co-Op Financial Services, a processor and network operator that links some 3,000 credit unions.

And mobile point-of-sale company Square Inc. jumped into person-to-person payments with the debut last year of Square Cash. Square updated the service earlier this month to enable users to request funds via e-mail or from within the Square Cash app.

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Regardless of the business model, Ron Shevlin, senior analyst at Aite Group LLC, a Boston-based consulting firm, has his doubts about the success of P2P services.

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“I don’t care how companies participate in clearXchange, as far as I’m concerned P2P payments won’t succeed until a number of things happen,” Shevlin says.

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First, mobile payments must become a widely adopted form of payment among consumers, he says. Too many consumers are uncomfortable making electronic-based P2P transactions, he says, for a number of reasons. “…And while mobile-based P2P transactions would help overcome the inconvenience of online–based P2P transactions, it’s still not more convenient than cash,” Shevlin says.

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Today’s way of marketing P2P services “sucks,” Shevlin says. “What I mean by this is that most banks who offer P2P services tell their customers ‘We have P2P!’  Most adults just don’t care.” The marketing show how consumers can solve a consumer problem, like simplifying a way for Grandma to send birthday money, he suggests.

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A big hurdle is that consumers don’t want to pay for P2P services, he says. “There’s no transaction cost when handing over cash or writing a check,” Shevlin says. “Consumers won’t pay a transaction fee when there are alternatives that don’t cost anything.”