The four biggest U.S. banks are in talks to link their digital payment systems to allow more consumers to easily transfer money with mobile phone messages and emails instead of cash and checks.
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A link-up could be a key step toward revolutionizing the way consumers pay one another, like when roommates pay one another for rent. Electronic payments would cut banks' processing costs by reducing the cash they have to handle and the checks they have to process. Over time, banks may also be able to boost revenue from electronic transactions by charging a nominal fee.
Banks and other companies have been unsuccessfully pushing electronic payments for years, but with younger consumers wed to their smart phones, there may be new hope, analysts said.
Three of the four biggest U.S. banks -- JPMorgan Chase & Co, Bank of America Corp and Wells Fargo & Co -- have already agreed to operate through a system known as clearXchange, while Citigroup Inc and some 1,400 smaller banks are on a system known as Popmoney. That business is managed by Fiserv, a provider of processing services to the banking industry.
The banks hope that by connecting the two systems they will create a network with a critical mass of customers who can use the systems to pay one another without a second thought. Customers of Popmoney and clearXchange combined account for roughly half of deposits owned by individual consumers.
Sanjeev Dheer, the Fiserv executive in charge of Popmoney, confirmed the discussions between the systems, as did another person with direct knowledge of the matter who declined to be named. Neither would provide further details because the talks are confidential.
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It's logical to link clearXchange with Popmoney, said Vincent D'Agostino, head of payments strategy and business development at JPMorgan Chase and one of three board members of clearXchange.
"We want to make moving money to people with other banks really seamless," said D'Agostino.
The Popmoney and clearXchange platforms could link up within 18 months, said Dheer of Fiserv.
When electronic payments are pervasive, a person will be able to easily open a mobile phone app and click to send money to a friend's phone or email account. The funds will land in the friend's bank account, saving the sender from writing a check or carrying a wad of cash and the receiver from having to make a deposit at a bank.
A SLOW START
Electronic payments among consumers have failed to catch on after years of hype. This year, according to research and consulting firm Aite Group, people will use computers and mobile phones to make about $50 billion in payments to other consumers, or just 6 percent of the roughly $900 billion of total person-to-person payments. The rest is done with cash and checks.
Even if consumers routinely pay businesses online, they have had no single platform for paying other consumers, and getting banks to work together is hard. JPMorgan Chase spent years developing its own QuickPay tool before agreeing in 2011 to join Bank of America and Wells Fargo to form clearXchange.
Chase plans to connect QuickPay with the two other banks in the coming months. Extensive tests must be done first to make the links fail safe. Today for a Chase account holder to send money to a Wells Fargo customer the recipient has to sign up with QuickPay to get the money.
In the late 1990s, a series of banks and Internet companies, from Citibank to Yahoo Inc launched electronic payment offerings. PayPal, now part of eBay Inc, was the only one to take, but it mainly handles transfers from consumers to businesses, or among businesses.
The hope for electronic payments may be with younger users, many of whom seem umbilically attached to their phones, said Ron Shevlin, senior analyst at Boston-based Aite. Among Generations X and Y, 20 percent of 1,115 consumers surveyed used electronic systems for personal payments, compared with only 11 percent of baby boomers, an Aite survey found.
Transfers often happen among family members, such as parents paying a child's allowance. Moving beyond the family is a big hurdle to jump, Shevlin added.
Fiserv's Dheer said banks must advertise the tools more before people will routinely pass money digitally. Citigroup and JPMorgan Chase have stepped up television and radio advertising this year, with Citigroup promoting its Popmoney offering and Chase its QuickPay, he noted.
Funds will have to be delivered faster, too, Dheer said. Now it usually takes at least a night for money to be moved between banks within a network.
"When you can do this real time, it will become a substitute for many of the cash transactions that happen today," he said.
If people found the services convenient enough, they might not object to paying 10 cents or more for each payment, which would add up for the banks, said Aite's Shevlin.