ZashPay and Popmoney are memorable names, but a new person-to-person payments company from three top banks may prove unforgettable.
With a joint venture called clearXchange, Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. are taking aim at the dominant bank-focused payments services, Fiserv Inc.'s ZashPay and CashEdge Inc.'s Popmoney.
ClearXchange will allow banks' customers to send money electronically by keying in a recipient's email address or mobile phone number at the banks' websites and their mobile applications. Funds are moved using the automated clearing house network.
Though clearXchange's service resembles that of eBay Inc.'s PayPal, its bank ties put it in closer competition with ZashPay and Popmoney, which are offered through bank websites. The operators of both services played down the potential competition that clearXchange poses but analysts said they should take notice.
"It is clearly a threat for … anyone who has a P-to-P solution like CashEdge, like ZashPay, that is selling to banks," said Gwenn Bezard, a research director at Aite Group LLC in Boston. "That is going to be a major threat for them."
Emmett Higdon, the founder and principal of the payments consulting firm Prizm Strategy in Charlotte, N.C., agreed.
"This is bigger news for those guys than it is for PayPal," Higdon said. "Ultimately for both of these services to survive, there's got to be interoperability between" clearXchange, Popmoney and ZashPay.
Citigroup Inc., which uses CashEdge's Popmoney service, is in discussions with clearXchange, according to a source familiar with the situation. The discussions are around whether Citi would take a stake in the joint venture as well as offer the service to customers, the source said. A Citi spokesman declined to comment about clearXchange but said the bank is always looking to "evolve" its digital payments strategy to best "serve our clients."
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 undisclosed transaction fees.
"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, Michael Kennedy, the chairman of the Charlotte, N.C., venture and head of payments strategy at Wells Fargo, said in an interview on Wednesday.
Executives at Fiserv and CashEdge said they view the formation of clearXchange as validation that the "bankcentric" approach to P-to-P payments is on the right track.
"I'm not saying it's not a form of competition," said Erich Litch, the president of digital channels at Fiserv. He said, "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 said the clearXchange launch may actually prove to be beneficial for them.
Neil Platt, the executive vice president and general manager of banking and payments at CashEdge, said 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 said. Integrating with a service like clearXchange could help expand use of both services.
Mac McCullough, the chief strategy officer for U.S. Bancorp, a CashEdge Popmoney client, declined to comment on clearXchange specifically but said that "any capability that is more broadly introduced to the market just makes it better for all of us."
Bezard and Higdon said that while clearXchange is ostensibly a threat to its rivals, it could choose to expand its userbase by integrating with them.
"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 P-to-P payments," said Higdon, a former Citigroup payments executive who worked on the bank's c2it service, which it offered in the early 2000s as a direct competitor to PayPal but ultimately shut down.
For the "longest time … consumers really haven't had choices," Higdon said.
Dan Schatt, the head of financial innovations at PayPal, said the announcement of clearXchange "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 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 said.
Each of the banks will decide their pricing. Bank of America and Wells Fargo are currently offering the service for free, though the banks could charge customers for the service, said John Feldman, the general manager of clearXchange and a former Bank of America executive.
