Early Warning Services announced on October 26th that it has entered into an agreement to acquire clearXchange, which will create a bank-owned real-time payments system with unparalleled DDA connectivity.
The transaction is expected to close by the end of 2015, after which seven leading banks will own the
US real time payments
combined entity, with PNC Bank joining the existing owners of Early Warning and clearXchange, writes Ryan Feeley, Manager, specializing in Debit and Prepaid at First Annapolis.
The new integrated platform is expected to be available to all US banks and credit unions in early 2016. The combined solution will deliver secure, real-time, non-card payments through a single platform that merges immediate funds availability with integrated real-time authentication and fraud management capabilities.
The combined entity will have several key assets as it seeks to establish a foothold in real-time payments:
- Real-time non-card payment network for consumers, businesses, and government agencies;
- Superior DDA connectivity with the ability to reach ~75% of U.S. checking accounts;
- Direct links to the core banking systems of leading financial institutions; and,
- Extensive risk management, fraud detection, and real-time authentication capabilities.
Figure 1: Early Warning Services and clearXchange Combined Company Profile
Source: Company announcements.
Early Warning’s clear advantage in DDA endpoint connectivity and risk management services, along with the backing of leading banks, make it an early front-runner in the industry race to commercialize real-time payments technology. It also provides a clear path for financial institutions to integrate a viable real-time payments service into their banking product suites. The consortium model allows financial institutions to control key components of a real-time payments infrastructure and dictate the business model to the rest of the market. Early Warning will likely seek to partner with various industry stakeholders to allow third party applications to integrate with the platform and create a hub infrastructure for ubiquitous real-time payments. Despite merchants’ hopes that a real-time payments infrastructure could eventually develop into a viable alternative to Visa and MasterCard, financial institutions will likely seek to avoid incursions into POS payments that could put existing interchange revenues at risk.
Competing real-time payments initiatives will need to develop strategic responses to the Early Warning/clearXchange combination. The Clearing House already announced partnerships with VocaLink and FIS (see “The Clearing House Stakes its Claim in Real-Time Payments”). A “co-opetition” model may emerge as key players seek to partner with Early Warning.
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