Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Banks team up for mobile cash transfers

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Big banks have banded together to battle back against the rising tide of payment start-ups.

Seven banks have invested in a digital payment network to launch a peer-to-peer mobile product to help them fend off a growing number of start-ups elbowing into their space. Smartphone-based peer-to-peer payment between banks' apps is expected to launch for most firms this summer, and represents a growing challenge from Wall Street to fintech firms like Square and PayPal.

BB&T, Wells Fargo, PNC Financial Services Group, Capital One, Bank of America, JPMorgan Chase and US Bancorp are participating in the new clearXchange network, representing 60 percent of the current mobile banking market. The bank-run payments service merged last year with risk management system Early Warning, which was backed by another consortium of American banks, bringing the total tally to seven banks on the project.

"By using this, you'll be able to send seamlessly between banks," said Gavin Michael, head of digital for JPMorgan Chase, one of the banks in the clearXchange network.

Representatives of US Bancorp, BB&T and Wells Fargo confirmed their participation. The other banks did not respond to a request for comment.

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Real-time funds availability will be on the payment network later this year. Using the digital product, consumers can transfer cash via phone number or e-mail address through their individual banking apps. But Michael did not rule out that the consortium might one day launch an app of its own, independent of big banks' existing mobile products.

The banks are dialing up their presence on smartphones as other start-ups in the industry are pushing further into key lines of business. CB Insights, which tracks venture capital investment across various asset classes, reported last year it expected total funding in 2015 for payments-focused companies to eclipse a new high, reaching a tally of about $3.8 billion on the year.

"Think about this as relatively small transactions," JPMorgan CEO of consumer and community banking Gordon Smith said at the firm's annual investor day Tuesday.

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While JPMorgan execs may view transactions as small, banks' participation in a space that has been dominated early on by start-ups is anything but.

Venmo, a subsidiary of PayPal, processed $7.5 billion in payments last year, representing an increase of more than 200 percent from the previous year. However, JPMorgan's QuickPay app service processed about $20 billion in peer-to-peer payments last year, with an average transaction size of $300.

And, Square, the California-based start-up that debuted on public markets in late 2015, initially was a payment card reader for small businesses before launching peer-to-peer products allowing users to send money via phone. It also has a lending business.