Non-Bank Rivals, Lack of Account Coverage Haunt Growing Real-Time Trend

A panel of two bankers and a banking-services provider gave an upbeat appraisal Monday of industry moves toward real-time payments, but indicated financial institutions still have a long way to go to serve customer demand and meet competitive thrusts from non-bank players.

“We’ve got more work to do,” said Roy C. DeCicco, managing director at JPMorgan Chase & Co., which is an owner of the clearXchange peer-to-peer payment system and one of two dozen big-bank owners of New York City-based The Clearing House Payments Co. LLC, which is building a real-time payments system. DeCicco spoke at a session on real-time payments at a conference in New Orleans organized by NACHA, the regulatory body for the automated clearing house network.

A so-called real-time payment is one that clears and settles into the recipient’s account a few minutes after the sender initiates the transaction.

One big issue for the banks is expanding competition in P2P payments from non-bank players. Earlier this month, for example, 7-year-old, Des Moines, Iowa-based startup Dwolla Inc. went live with a real-time payment system for Houston-based BBVA Compass Bank.

And Venmo, a P2P service managed by PayPal Inc.’s Braintree unit, is rapidly gaining in popularity, especially among younger users. Jim Reuter, president of support services for Lakewood, Colo.-based FirstBank Holding Co., said his customers have transferred almost $1 million on Venmo so far, a figure that’s now growing about $200,000 per month.

FirstBank has countered by offering a service based on a bank-controlled product called clearXchange that has attracted 16,000 users. That service is processing $3 million monthly, Reuter said (FirstBank is one of six banks using clearXchange, and the only one that is not an equity owner). Still, the fact that Venmo, a service FirstBank does not promote, is moving fully one-third as much as the bank’s own service has left an impression on the banker. “If we don’t offer the service, someone else will,” he said.

One other major issue is that none of the P2P systems yet reaches all available bank accounts. Charlotte, N.C.-based clearXchange, which launched in 2011 and is controlled by five of the nation’s largest banks, can now claim coverage of 55% to 60% of the nation’s account base, according to DeCicco. But that’s still far from enough. “What we don’t have so far is that ubiquity we keep chasing,” he said. “That’s 100% of customers.”

Customers of a clearXchange network bank can send money to anyone with a U.S bank account. But customers of non-network banks must fill out a one-time registration on the clearXchange Web site to receive their money.

The problem, said the panelists, is that no P2P payment system, real-time or not, will achieve widespread adoption without the assurance that payment can be made into an account regardless of where the recipient has the account. “The objective is full ubiquity so we can make payments to anybody,” said Steve Ledford, senior vice president of product and strategy at The Clearing House, which announced its real-time project last year

The Federal Reserve is also leading an effort to coordinate efforts by financial institutions to build a nationwide real-time payments system.

The panel had two pieces of advice for bankers planning to offer real-time payments services: include a messaging component and don’t get hung up on return on investment. Reuter tells Digital Transactions News one of the factors that makes Venmo so popular is the ability to send pictures and messages along with payments. Accordingly, FirstBank offers stock messages with a somewhat humorous overtone users can send to persons they’re trying to collect money from.

Last month Facebook Inc. underscored the social aspect of payments by introducing a P2P service built on top of its Messenger service.

As for ROI, which many bankers say is hard to prove with often free P2P payments services, Reuter’s advice was not to fret too much about it. Instead, he said, bankers should view P2P as an essential service. “Faster payment is already in demand by the consumer,” he told the audience. “We need to build an infrastructure to meet that need. ROI? What’s your ROI for your teller line?”

The panelists spoke at NACHA’s Payments 2015 conference, which runs through Wednesday.