Tech rivals take on the big banks with instant payments

Image above by Ken Teegardin on Flickr 

Latest guest post from Misys.com (see also ‘Banking with Wearables: Should the finance industry start using smart devices more?‘). MisysFS, aiming to to transform the global financial services industry, through making financial institutions more resilient, efficient and competitive.

We live in an increasingly impatient society today, spoiled by a proliferation of modern technology which slashes the amount of time it takes to do everything from catching the latest blockbuster movie and ordering a pizza to accessing basic banking services.

Indeed, over the last couple of years, financial institutions have made huge strides in catering to today’s on-demand culture, providing instant access to statements, transaction history and other banking services via mobile smartphone apps, the very same services which once upon a time meant a trip to the nearest branch or, at the very least, some sit-down time in front of a desktop web browser.

Yet for all the positive inroads banks have made with their on-the-go financial software, there remains a key area in which the industry as a whole has been falling far, far behind:

Real-time, instant transactions

While customers in the US have for some time now enjoyed the ability to initiate a money transfer from one bank account to another with a single click of a button on their mobile banking app, the banks themselves have lagged behind,  taking anywhere from 24 hours to 2-3 days to get that money from one account to the next.

This lengthy delay -a lifetime in today’s fast-paced, everything-now society- no doubt explains why customers, particularly younger ones who have grown up knowing nothing other than uber-quick service, have been turning away from the banks themselves to the very same big brand tech companies they trust for instant service for other modern life essentials, looking to the Apples, Amazons, and Googles of the world to meet their expectations of instant, real-time banking transactions.

Image of PAYPAL from Wikimedia Commons 

The tech companies, to their credit, have stepped up to the proverbial plate, with the likes of PayPal, Facebook, and Apple, doing what the banks have previously been unable -or at the very least unwilling- to do:  Eliminate the time it takes to move money between banks.

Introducing clearXchange

Yet finance software like PayPal’s shared payments platform VenMo and Facebook’s Messenger update have done more than fill a gap in the market; they’ve essentially prompted financial institutions to sit up, take note of just how much ground they’re losing to their tech rivals, and ultimately do something about it.

That something comes in the form of clearXchange, a new system joint owned by major players in the US banking industry like Wells Fargo, JP Morgan, Bank of America and a slew of others.

By plugging into the system -as its owners are hoping more and more financial services will do in the near future- banks can finally take on their rivals in the tech industry by allowing customers to make instant payments between different institutions.

More work to be done

For banks, the launch of clearXchange is a positive step in the right direction in extending the olive branch to customers left frustrated by lengthy transaction times. Though while it’s definitely a good start, there’s still some work to be done before the likes of Bank of America and Wells Fargo can really pit themselves against fintech innovators in the instant payment space.

At time of writing, six of clearXchange’s seven key stakeholders had already integrated -or at least announced plans to integrate- the system into their existing financial software, with only regional operation BB&T Corp holding their cards close to their chest.

Meanwhile, other major institutions such as Citigroup –currently the fourth largest in America by assets refused to be drawn on whether they would eventually get on board. It’s likely however, that they may not have much choice in the matter for long, and will join the system as much for the sake of their own long-term future as to ensure clearXchange’s success in empowering the finance industry to take on their tech-focussed competitors.

No going back

If the launch of this new system has proven anything, it’s that the most effective way for banks to go toe-to-toe with the likes of PayPal is to join forces, while the very fact that they’ve been compelled to take action in the first place -coupled with the success of services such as VenMo proves there is a demand among customers for instant payments.

So, with more companies starting to offer this as an option, is it really beyond the realms of possibility to imagine customers gradually switching from banks who can’t offer instant payments to ones that can?

With the system still in its infancy, it may be too early to say for sure whether or not this will happen, though if there’s one thing that is certain, it’s that with clearXchange, banks are finally arming themselves to take on their tech rivals, and for the finance industry as a whole, it seems there’s no turning back.

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