In Depth

clearXchange Rolls Out Real-Time Payments

The faster payments bandwagon just got a little more crowded.

Today, (June 15), the clearXchange network officially announces the launch of a real-time payments solution designed to enhance the experience of consumers, businesses and government entities utilizing its network. The real-time capability is now available to all clearXchange member financial institutions and will be available immediately to any new institutions that join the network.

To better explain the impact of real-time capability and why consumers, banks, businesses and governments have agreed that real-time is the best method to embrace, Mike Kennedy, CEO of clearXchange, sat down with MPD CEO Karen Webster to explain the news.

“I think the key thing to understand is that the banks have agreed that this is the way to do it. That we’ve designed that has significantly lower impact on their system than a lot of other proposals that are out in the industry today. It will also allow us to get to market must faster. The banks will be rolling this out to the customer over the next year,” Kennedy said. “We have real-time messaging for our consumers since we launched. This also allows for real-time funds availability as well.”

These faster payments capabilities will be available for the use cases that the clearXchange network enables: primarily push credit transfers between two people, business and consumers, and governments and consumers.

Kennedy told Webster that while 50 percent of clearXchange enabled transactions were already completed in real-time when customers transferred money within the same bank (Chase to Chase or Bank of America to Bank of America), this new technology will enable real-time transfers from any clearXchange member bank to another clearXchange member bank.

When asked how the clearXchange real time payments network works, in order words, who bears the risk, how much it costs, and how banks actually enable the real-time clearing and settlement, Kennedy told Webster that the banks are free to set their own fee schedules and limits and offered that the clearXchange network ensures it follows a good funds model to ensure that there is a system in place for when one person transfers money to another that that real-time payment can actually be funded.

“I think we’ve done a lot of things with this model to really mitigate any risk that’s out there,” he said.

The clearXchange network is open to anyone with a U.S. bank account and more than 100 million online banking customers already have access to the network through their bank’s online banking platforms, and all others can access services through clearxchange.com, Kennedy said. To send funds directly to a checking or savings account, only an email address or mobile number is needed. Five of the six largest banks in the U.S. and multiple regional financial institutions participate in the clearXchange network and member financial institutions are expected to rollout the real-time offering to their customers over the next year.

That includes the recent announcement that Chase has also joined the clearXchange network. It’s taken four years for Chase to actually launch with clearXchange even though Kennedy said in another recent interview that the company has backed the network since its inception. He noted that Chase will add its 38 million online banking customers and 20 million mobile banking customers to the network.

“We are seeing over 100 percent year-over-year adoption of the clearXchange network. Getting [Chase] in there to have that scale alongside Bank Of America, Wells Fargo, Capital One, U.S. Bank, First Bank and others really does make a big push,” Kennedy said. “Payments are a two-sided market. And you want to make sure that if you are saying that if you can send money, you want to make sure you send money in real-time, and you want to make sure that there are a lot of others out there that can receive it in real-time. …[And] the best experience is when both the sender and the receiver are in network.”

Getting more banks into the network is more important than getting customers to go through clearxchange.com, Kennedy said, so that consumers are able to send and receive money from their own banks for the best safety and security.

Faster payments is clearly the buzz in the market as a variety of stakeholders, including the Fed, are pressing for modernizing the banking rails in order to move money faster between people and businesses. Webster asked Kennedy just how relevant “real-time” is and whether efforts like the one NACHA member banks have nearly unanimously approved to enable same-day payments is good enough.

“People have been asking for it,” Kennedy said, citing a study from the Fed that said roughly 69 percent of consumers want real-time payments. “Others have said that of consumers who want real-time payments, 88 percent of them want it provided by their banks rather than an alternative bank provider. Also what we’re seeing is that the No. 1, or one of the most frequently recited requests that come into our call center is essentially: ‘Where are my funds?'”

Customers expect that if a payment amount has been taken out of one account, then it should have made its way into the account it is slated for. That’s what real-time capability is all about, Kennedy explained.

“We do feel people are expecting more things to happen in real-time. They are expecting instant gratification for other things in life and I think it’s finally making its way into financial transactions,” Kennedy said. “We as an industry need to make things better and move things forward for the benefit of customers. Whether it be government, businesses or consumers.”

The stumbling block for real-time payments in the U.S. has been the sheer number of banks that need to sign on to such a program – not only to make real-time funds available, but to agree to a standard set of rules that govern pricing and risk. Efforts in the past that have not had ubiquitous availability have failed, including prior efforts on the part of the Fed and FIS. The Fed is lobbying heavily for real-time payments availability, citing its strategic importance to banks, despite the lack of a real use case and business model for banks to recover the cost of systems upgrades to do real-time clearing and settlement.

NACHA’s proposal, which was nearly unanimously approved by all of its member banks, will enable same-day good funds availability by implementing a standard set of rules for clearing and settlement windows, as well as pricing and risk management. Phase 1, which will enable credit push transactions — funds “pushed” from one account to another at the direction of the sender — will be available to all 12,000-plus NACHA member banks in the fall of 2016.

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