The U.S. could be one step closer to a faster payments system. Recently clearXchange, the largest bank-offered digital payments network, announced the availability of its real-time solution.
What this means is that payments using clearXchange’s real-time solution will be immediately available to the recipient through their existing bank account. By implementing the technology, financial institutions will be able to further meet customers’ demands for real-time payments. Currently, more than 50% of clearXchange enabled transactions are completed in real-time when customers transfer money within the same bank. With the new technology, real-time transfers can also happen from bank-to-bank.
The clearXchange network is open to anyone with a U.S. bank account. 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. According to the company, only an email address or mobile number is needed to send funds directly to a checking or savings account, giving customers and easy and convenient way to leave cash and checks at home.
"Consumers will now be able to make payments and have them arrive to the recipient with shorter turnaround times. Folks who are paying their mortgage or rent at the last minute can potentially avoid late fees, and those sending money to kids who are off at school and need it right away will be able to get their money quickly," says David Bakke, a financial columnist for Moneycrashers.com. "It may also reduce the need for sending money through Western Union, which comes with an added fee," he adds.
Bakke believes clearXchange’s move is significant. "Most of the banks use clearXchange, including Wells Fargo, Bank of America, U.S. Bank and Capital One. What this portends for payment systems in the U.S. is that there is a new competitor."
While he says that clearXchange may have a tough time rivaling PayPal, "But if it offers more attractive fees for using the service (it hasn’t yet announced any details on a proposed fee structure), it could absolutely make for a strong alternative. Plus it seems as though transactions completed through clearXchange will be faster than PayPal’s current system."
However, at this stage, it is unclear what the security implications will be since there is little published about how the banks are actually doing funds settlement, points out Ray Wizbowski, vice president of financial marketing at Entrust Datacard, an issuer of credit cards and instant issuance card machines.
In the past, he explains, these services relied on ACH transfers which are typically settled the next business day. With real-time service, the banks would have to be connected and credit in advance of actual funds transfer. "The biggest concern in real-time funds transfer is the level of security of the user identity," says Wizbowski.
The service only requires an email or phone number to be associated to a single account which acts as the identifier for the person who is associated with the transaction, "This is not a high level of security. Real-time payments should include stronger forms of authentication, like fingerprint authentication – to improve overall security, especially of a real-time service," says Wizbowski.
No doubt there is a big push for real-time in all banking services. "Consumers have become accustomed to getting services immediately and this is reshaping the way banks have to react," says Wizbowski.
Overall, he says, the impact to the U.S. payment system will lead to more transparency as funds move faster through the systems, but it will come at a cost. Says Wizbowski, "Ultimately someone will have to pay for the required infrastructure upgrades and that cost will eventually make its way down to the consumer."