The U.S. banking system lags behind places like Europe when it comes to instant person-to-person payments. But a number of big financial institutions are now trying to get in the game.
Some banks in the digital payments network called clearXchange are now allowing customers to send and receive money instantly to customers of participating banks using just a mobile number or email address.
The exchange is owned by Bank of America, BB&T, Capital One, Chase, PNC, U.S. Bank and Wells Fargo. They’re competing with scrappier players like Venmo and Square Cash, which are becoming popular apps for beaming payments to friends and family.
Wells Fargo, one of the clearXchange participants, has allowed peer-to-peer payments for a few years but just launched the “real-time” capability for them Monday.
“If you’re splitting a dinner check or paying a babysitter and you don’t have cash or don’t want to use cash, real-time fund availability just takes the money from one account and puts it in another account within a couple minutes,” said Wells Fargo spokesman Kris Dahl.
With an app like Venmo, the money may not get to your bank account for a day or two. However, Venmo is really popular among millennials. And banks want millennials’ business.
Jim Sinegal, an analyst at Morningstar, said the instant peer-to-peer payments alone won’t be especially lucrative for banks. But they serve a strategic purpose.
“The idea is that it’s a gateway for the more profitable payment transactions: from consumer to merchant, from government to consumer,” he said.
A potential disadvantage for banks, though, is that their apps might not be as easy and fun to use as some of the tech companies’ apps are, according to Talie Baker, an analyst at Aite Group.
An app like Wells Fargo’s requires extra steps, such as logging into the mobile app with your bank account and password, assuming you don’t have an iPhone with thumbprint identification. Then you have to click through a few additional options before finding the one to “send money now.”
“I think that’s the hurdle for banks right now—them being able to make their apps as frictionless and have that cool appeal,” said Baker. “Because Venmo is really cool.”
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