Cap One Joins ClearXchange
|ANALYSIS FROM KAREN WEBSTER
|To Create A Habit, First You Have To Break One|
|Black Swans, Payments and 1982|
By Karen Webster, CEO, Market Platform Dynamics (@karenmpd)
The P2P funds-transfer space just got more interesting.
ClearXchange broke some news this morning that Capital One Financial Corp., the 7th largest U.S. bank by deposit holdings, has joined the ClearXchange network. Cap One serves roughly 50 million customers across the country, including those of its online/direct/mobile banking subsidiary ING, which it acquired in 2012.
That’s pretty big doings for four reasons:
1. ClearXchange now has four of the top seven banks in U.S. in its network.
2. These member banks represent 50% of U.S. mobile-banking users
3. These users likely represent current and prospective users of P2P solutions.
4. These users create a sticky network for both ClearXchange and its banks. More P2P network pairs create more network pairs, and so on.
ClearXchange is by banks, for banks and of banks, and was actually formed in the first place to take the friction out of moving money between people. ClearXchangeis a network that moves money directly between bank depository accounts over the ACH rails.
Anyone with a bank account at a member bank can send money in near real time to anyone else at a member bank knowing only the recipient’s email address and mobile phone number. Recipients “out of network” also can receive money, but they must first visit clearxchange.com and register. They’re then able to use ClearXchange both to send and to receive money.
Mike Kennedy, ClearXchange’s CEO, told me that the market for U.S. P2P funds transfer services is $900 billion. That’s mostly made up of transactions done in cash and check today, but he and his team are hoping that a huge chunk of that ends up on its platform for the benefit of its member banks as well as the network itself.
Today, ClearXchange’s P2P solutions are white labeled, so there really isn’t any brand visibility for this network operator – and that’s by design. ClearXchange wants its member banks to be associated with providing the service. So Chase customers know the service as QuickPay, Wells Fargo’s as SurePay and Bank of America’s as Send Money.
But that could change. Mike and team are pondering if and when it might make sense to introduce some sort of ClearXchange branding so customers begin to make the connection between the bank network that moves money between people and their own brand.
ClearXchange Versus Competitors
Mike and I chatted a bit about the merits of ClearXchange versus other P2P alternatives. Mike’s view is that, especially now given the reports of the “breach du jour,” bank-operated P2P networks offer a safe and secure alternative for consumers increasingly skittish about protecting sensitive bank account information. He cites a decade of investment that banks have made in “bullet proofing” the security of online and mobile banking as a proof point that helps convey an important degree of consumer comfort and simply extends an already trusted relationship with their bank into one that enables P2P capabilities.
We also chatted about the cause and effect of P2P and mobile, particularly with respect to the onboarding of Cap One and its younger, more mobile customer base. It’s a fact that younger consumers like and use mobile banking. In fact, Pew reported last year that 54 percent of those ages 18 to 29 use mobile banking services. That also seems to be the sweet spot for P2P.
Although there’s nothing really tangible out there in the research ether that makes a one-to-one connection between mobile banking and P2P use, the combo platter of mobile + mobile banking + younger users + P2P just seems like a really nice recipe for driving adoption and use of ClearXchange’s network.
Competition Drives Interest
That led me to ask Mike to assess the impact of P2P challengers like Square Cash and Google Wallet Gmail on ClearXchange network’s efforts to capture market share. His response was interesting. Turns out that each time there’s an announcement about a new P2P entrant, it triggers a raft of calls from customers to their bank asking about bank-enabled options, which, Mike says, only ends up helping its banks onboard more customers.
I tried really hard to eke out more news with respect to the future of ClearXchange, but no dice. It’s clear (no pun intended) that the expansion of the P2P member-bank network is just the first stop on the way to something much larger once millions of consumers with access to each other’s bank accounts are transacting on the ClearXchange network. There could be some potentially disruptive possibilities.
ClearXchange could enable a massive person-to-business network, or business-to-business network. The latter could disrupt just about everyone and anyone who is trying to solve the chicken-and-egg issue of getting both sides of the B2B market on board and the former eliminate an important use case for mPOS in the business services sector.
In the maybe-it-sounds-crazy-but-isn’t-impossible category, ClearXchange could also enable a person-to-merchant network, which could reinvent “debit” by making it possible for consumers to pay for things by simply directing funds from their bank accounts to merchant bank accounts. Yes, the devil is in the details about how it could be done, but it could represent not only an efficient way to move money between people and merchants, but also lay the groundwork for an entirely new business model.
There are also a few things that have to happen on the way to disruption, however. That starts with how to monetize its P2P service, which may be the proverbial “loss leader” on the way to something bigger. Then there’s reconciling the potentially competing initiatives related to ACH that banks are being asked to consider, not to mention the endless aspirations related to FIs and their mobile wallets.
What I found most interesting about my chat with Mike is that, unless you take the time to think a little bit about the bigger picture, you’d chalk up ClearXchange to just another P2P scheme without a clear path to the grand plan to monetize its assets. There’s definitely a grand plan brewing here. .
And, you might even get a little peek at that next month, too. Mike will be part of The Innovation Project 2014’s opening session with HBS Professor and father of Competitive Strategy, Michael Porter on “reinventing payments.” Mike is part of the CEO discussion group representing the “challengers” to the existing payments incumbents, which itself is interesting since ClearXchange network members are, themselves, incumbents.
Now I doubt Mike will spill his guts, even though he’s an HBS grad and will sort of feel at home here in Boston at his Alma Mata, but only Innovation Project delegates will know for sure. So, I guess you’ll just have to show up to find out. (You can apply here if that’s what you’d like to do.)
Regardless, ClearXchange is likely to make a lot more than P2P interesting as the months and years unfold.