The mobile payment space is huge and set to grow by the day. Interacting with NFC terminals to pay for goods, using regular credit card terminals and sending or receiving money between friends are all things you can do from your phone these days. The three major players in the space, being Apple Pay, Android Pay and Samsung Pay, are all run by tech companies. PayPal is in on the game as well, albeit to a lesser extent, as is Facebook, on their Messenger platform. Meanwhile, banks are jumping onto the mobile payment bandwagon left and right by supporting the burgeoning services and adding in compatibility for them. Meanwhile, the banks' own apps are mostly limited to viewing balances and ledgers, transferring money between accounts or other banks, with standard check clearing times, and other bank functions like fraud reporting.
Since the dawn of the mobile payment space, that's been the way of things. A mobile payment app takes the payment or transfer and it's processed through the bank, normally taking 1 to 3 business days, if not longer in some cases. Their involvement and user engagement ends there. Beyond the possibility of more use of their services, banks don't get much out of the deal the way things are at the moment. Some banks, such as Barclays, already have an app capable of mobile payments. They have, however, largely failed to put a dent in the space, leaving it dominated by tech firms to this day. Four of the big banks in the United States, however, seem to be plotting to overthrow the tripartite mobile payment throne. Specifically, Wells Fargo, Bank of America, US Bancorp and J.P. Morgan Chase plan to use a system they all hold joint ownership of to implement faster and, hopefully, more popular solution for mobile payments. The system is called ClearXchange and promises instantaneous clearing of person to person payments made through it. The banks plan to use this as a backbone for money transferring.
The banking industry has generally been slow to adopt the new face of the payment and money transfer world. Wells Fargo just announced compatibility with Android Pay recently, though they have been on board with Apple Pay for a while. Other banks, especially smaller ones and credit unions, aren't on board with these services at all. Some don't plan to get on board with them, leaving their customers out in the cold in the mobile payment space. As mobile payments continue to gain popularity, with compatible terminals popping up in more and more places, effectively locking customers out of using mobile payments or forcing them to open dedicated accounts with other institutions may become a good way to lose customers. The dawning of this ClearXchange program, which is already starting to show fruit in the form of Bank of America and U.S. Bancorp customers being able to use it to transfer between each other, is just beginning to gain traction. As of now, a small number of banks are involved. Some, who have been offered the chance to get in on the action, are still not on board. An example of such a bank is CitiGroup, one of the largest in the U.S., who declined to comment when asked why they haven't jumped on the bandwagon yet.
Part of this can be chalked up to the complete shakedown of the system from the bottom up that took place in 2008. Many banks, like Washington Mutual, simply shut down. Meanwhile, some required government bailouts just to stay alive and the ones that remained standing on their own had a hard time keeping up like they used to. The common thread between all banks that somehow survived the disastrous economic slump is that they're all still picking up the pieces to this day, leaving adoption of mobile payments a low priority. Meanwhile, consumers are starting to see less and less reason to shack up with traditional banks. Unless you're looking to start a savings account for retirement or get a mortgage, most prepaid cards that can be loaded up with cash will serve just as well as a traditional bank account for most things that people need to do with their money these days. On top of that, startups in the tech world, often backed by some of the investors that scored big just after or perhaps partially caused the 2008 slump, started to fill in the gaps. Payments, money transfers, payroll and lending all experienced a tech takeover, among other financial fields. A revolution has been in full swing since 2008 and still is to this day. This has created a vicious cycle of sorts for banks, which may be part of the reason that the four named above said "no more" and created ClearXchange.
In order for the banking industry's gambit with ClearXchange to succeed, participation will need to be high. Right now, the system only has five participants, four of whom are the founders. Obviously, this is not an ideal state of affairs for a financial network, no matter what the performance is like. For most users, the benefits of ClearXchange don't mean a thing at the moment. A PayPal exec weighed in, saying, "The banks have a hard time working with one another…", and pointing out that the system would have to, in essence, go viral in order to work as intended, and this would be no easy feat for the banking industry. As things stand, the U.S. banking industry basically needs to join hands and start a new revolution to fight the one in progress. Even if they all worked together seamlessly, they have a hard road ahead. Doubts run rampant that ClearXchange will change the fate of big banking now that the bigwigs have been turned into the scrappy underdogs, but the possibility to flip the script is certainly there. Only time will tell how things will go.