If you want to keep your revolutionary payments system top secret, here's a piece of advice: launch it in Arizona. That's what Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) did in April, with their new clearXchange system; nobody noticed, until they put out a press release today.
ClearXchange really could be a game-changer, though. I spoke to Mike Kennedy, the Wells Fargo executive who's leading the project, which right now is a joint venture between Wells, BofA, and Chase; he reckons that by this time next year, the program will not only be rolled out nationwide but will also be available to pretty much anybody with a bank account. (For the time being, both the sender and the receiver of the money need to be a customer of one of those three banks, and right now the sender needs to be in Arizona.)
ClearXchange is a clear competitor to the likes of PayPal and Popmoney, but it's not an existential threat to those companies. Instead, the reason I like it is just that it brings peer-to-peer payments where they belong, to the level of the bank account. And it's likely to set a new benchmark of $0.00 for the cost that consumers pay for such payments.
Up until now, most payments mechanisms, including PayPal, necessitated opening a new account. PayPal is now moving away from that system, and is trying to do deals with banks where its technology can get integrated directly into the banks' own software and mobile apps, allowing people to send money to each other even if they don't have a PayPal account. ClearXchange works much the same way: if I want to use it to send money to you, I just pull up my own bank's mobile-banking app and use that. I don't need to go to some separate clearXchange app. The first time you receive money from it, you'll get a text message or an email telling you that you need to link your email or phone number to your account; after that, the money should just automatically appear in your checking account.
None of these technologies are cost-free, as far as the end-user banks are concerned. But processing checks isn't cost-free either, and banks do that for free. In general, as a matter of public policy, there's a strong interest in having the $865 billion which changes hands between Americans every year clear at par: the amount the sender is down should be exactly equal to the amount the receiver is up. That's one of the reasons why so much of that $865 billion is transacted in cash, and it's a big annoyance with PayPal and Square and other services which have a tendency to charge money for the service of facilitating payments.
What I'm hoping is that clearXchange will help make that service a basic part of what banks do whenever you open a checking account — that electronic peer-to-peer payments will just get added to the list of free services along with electronic bill payments and fee-free check clearing.
But that doesn't mean that all banks will encourage their customers to use clearXchange technology instead of PayPal, Square, Popmoney. If those vendors can come up with a way of sending money which is cheaper and easier and safer and more efficient for the banks, then the banks will use those services rather than clearXchange. In any case, it's all going to be pretty much invisible to the end user, who just sees their own bank's website or app.
So I hope that the other big payments providers stick around, to provide competition for clearXchange and act as a force preventing the banks from charging for the service once it reaches ubiquity. We want this to be like bill pay, which is generally free at both ends of the transaction, and not like debit-card usage, with its fast-rising interchange fees (until Richard Durbin came along). And now that clearXchange has launched, I'm more optimistic than ever that we might actually achieve that goal.