Why Jack Henry wanted Payrailz's P2P tech

Jack Henry & Associates has onboarded more than 200 financial institutions to Early Warning Service's Zelle peer-to-peer payment service since it launched five years ago, but some banks hesitated to sign on to Zelle, fearing higher costs and fraud risks.

Certain community banks and credit unions across the U.S. sought out a lower-cost P2P solution called "Chuck" from Alloy Labs Alliance which Glastonbury, Connecticut-based Payrailz supports. Now Jack Henry is buying the fintech to expand that and related services to a wider audience.

In addition to its proprietary P2P product, Payrailz brings additional cloud-based payments technology for bank bill payment and business-to-consumer payments that Jack Henry will incorporate, said Tede Forman, president of payment solutions for Monett, Missouri-based Jack Henry.

"The solutions Payrailz has developed complements our own expanding real-time payments solutions, and adding their fintech culture to ours is a good fit," Forman said.

Jack Henry can now directly offer Payrailz's solutions as a Zelle alternative, he said.

"The price point Zelle requires to get into their P2P network can be cost-prohibitive for some smaller financial institutions, but increasingly every bank is discovering that they really need to offer some kind of P2P solution to stay competitive," Forman said.

With Payrailz's white-labeled P2P solution, financial institutions' customers can send payments to a debit card, a Venmo account or an ACH account using lower-cost rails. Payrailz offers a guarantee against fraud by requiring each payment to be verified with a code word.

Payrailz also has its own real-time bill payment solution and account-to-account transfer features that Jack Henry will mesh with its own push to adopt the Mastercard Bill Pay Exchange for its financial institution customers, according to Forman.

"Real-time payments is rapidly modernizing bank bill payments so we can deliver the newest features biller-direct sites offer like getting a text message on your Apple Watch that a utility bill is due, which is a really sticky feature banks want to add," he said.

Analysts see the deal as a positive, particularly for Payrailz.

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"One of the bigger challenges of being a financial institution-focused fintech is distribution and scale, and Jack Henry provides Payrailz with access to thousands of FI's," said Thad Peterson, a strategic advisor with Aite-Novarica.

Payrailz, formed in 2016 by a consortium of credit unions, banks and investors, has under 100 employeesand will remain in Connecticut while sharing technology with Jack Henry, the companies said.

"This deal provides significant growth opportunities with frictionless access to Jack Henry's existing clients and offers our clients peace of mind that Jack Henry has a long-term commitment to investing in the Payrailz platform," said Fran Duggan, Payrailz founder and CEO.

Terms of the deal, which is expected to close at the end of the month, weren't disclosed.