Quick Thoughts – Capital One Joins Bank-Owned Payment Network
COF announced yesterday that it had joined clearXchange, a bank-owned payment network founded by JPM, BAC, and WFC. clearXchange focuses on P2P payments (enabled using the recipient’s e-mail address or mobile phone number) and now covers half the addressable market; network suppliers to other banks offering P2P services include PeoplePay from FIS and PopMoney from Fiserv. Banks are looking to provide P2P services to customers to protect their franchises against disintermediation by non-bank providers (such as PayPal, Google, and Square) which route transactions over Visa/MasterCard if the payment is linked to a credit or debit card.
While clearXchange has focused on P2P payments, there is no technical reason why it could not also process point-of-sale (POS) payments in the case where one of the member banks is the acquirer. If, for example, JPM is the acquiring bank it can route a transaction from, say, a COF debit card over clearXchange rather than over the network-brand of the card, whether Visa or MasterCard; the routing would be based on the Bank Identification Number and so is sometimes referred to as “BIN” routing. As a result of its private-processing arrangement announced last February with Visa, JPM is already looking to use BIN routing where it is both the issuer and acquirer.
Between them, clearXchange members have a near 40% share of total acquiring volume (see table). Our note from last October, “Expect Bank Disintermediation of Networks for US Debit” provides additional background.