Despite the challenges faced by previous payments consortia (think Spectrum, Pariter and ISIS), many continue to believe that partnership and “co-opetition” are the best ways to compete in emerging payments markets, like online and mobile payments. On Wednesday, May 25, 2011, another formidable group – Bank of America, JPMorgan Chase and Wells Fargo – announced the launch of the joint venture clearXchange, which will enable their customers to move money using a mobile number or e-mail address. This announcement came a day before Google’s unveiling of their latest payment partnership with MasterCard and Citigroup, focused on mobile point-of-sale payments.
Owners of the clearXchange utility stressed the importance of this new offering as a method to continue their ongoing drive to reduce check and cash volume for person-to-person (P2P) payments. However, an obvious potential motivator for this service is the desire to create a bank response to popular P2P solution provider PayPal.
Moreover, the press release for the new venture left open the possibility of expanding the service to include, “…other financial institutions and endpoints to create a money movement capability across the industry.” This broader scope potentially puts the new consortium into the competitive arena with payments network heavyweights like Visa and MasterCard, especially for lower-value online and mobile purchases, including digital content.
Depending on how far this new venture extends its offering to the downstream financial institutions space, this offering also has competitive implications for ZashPay, the new solution from Fiserv, as well as PopMoney, the CashEdge P2P offering. And since CashEdge is the utility service provider to many of the banks’ existing “move money” solutions, it will be interesting to see how this new venture affects CashEdge’s broader business.
Of course, there also are implications for any of the mobile money transfer services now vying for market acceptance worldwide, from players like Obopay and Fundamo to more traditional players like Western Union and MoneyGram. However, the current clearXchange offering is clearly targeted to domestic customers of traditional U.S. banks, so it doesn’t seem likely that this new venture will pose a threat to many of the players building mobile solutions for the under-banked segments in the United States and abroad.
Clearly, this move highlights a growing interest in P2P payments, combined with the growing challenges banks have of addressing the “last-mile problem” of consumer paper check usage, which is for low-value P2P- type payments. Not surprisingly, the clearXchange venture is launching the solution as a free offering for existing customers, making the economics of the offering dependent upon a range of other factors, including customer retention, expense reduction from paper check handling, etc.
PayPal itself proved nearly a decade ago that P2P payments as a standalone value proposition is a tough business, since consumers are rarely willing to pay for non-emergency payments. By contrast, PayPal found that the more lucrative area of opportunity is for payments to small businesses (micro-enterprises) that find acceptance of card products challenging and cost prohibitive. Whether this new joint venture chooses to formally enter that market space remains to be seen, but some micro-enterprises may choose to use this new solution as a form of business payment, introducing new risks to the service without necessarily providing enhanced revenue opportunities. In fact, this has been one of the challenges existing online banking solutions have faced to date – the problem of the fraud and chargebacks. However, to the extent the solution seeks to monetize the offering as a true PayPal competitor, that could in fact be the most interesting (and potentially lucrative) area of future competition for the venture.
Margaret is a Managing Director at Market Platform Dynamics and experienced payments industry executive with a proven track record of commercializing new technologies in small start-ups, and large multi-national corporations. Read More
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