Community Banks Form New Payments Network To Take On Zelle
A Fintech Snark Tank Exclusive
Fintech Zoom and the Fintech Snark Tank has learned that a consortium of community banks will announce the launch of CHUCK™, an open network for instant payments. According to the Alloy Labs Alliance, the network will enable consumers to:
“Send money from their banking app (desktop or mobile), and let recipients choose where they want the money to go, including some of the popular payment networks. Financial institutions now have a choice when it comes to providing instant payment capabilities and don’t have to settle for an expensive, restrictive, and closed network.”
The new network—to be integrated into community banks’ mobile banking apps—will alleviate the need for consumers to move money between apps or log in to their bank account to check their balance just to transfer funds from another application.
Julie Thurlow, Chief Executive Officer of Reading Cooperative Bank, a bank instrumental in creating the network, explained:
“This is a network for community banks, by community banks. The first product we’re launching is peer-to-peer (P2P) payments. We have an extensive roadmap of applications that will provide community banks with the fast, flexible infrastructure they need to remain competitive over the long term.”
Where will recipients want the money to go if not their bank accounts? And which “popular payment networks” will consumers want to send the money to? According to DJ Seeterlin, Chief Information Officer of Chesapeake Bank, a consortium member:
“Other payment systems are closed loop, forcing both the sender and participant to use the same service. While there is wide adoption of services like Venmo, CashApp, and Zelle, there is no single ubiquitous payment service. Our vision is to support sending funds anywhere. Our focus includes support for faster payments rails like The Clearing House’s RTP and eventually FedNow.”
There are benefits for the community banks, as well as their customers. According to Reading Coop’s Thurlow, participating banks will see a significant cost savings—both in the initial setup as well as in transaction fees—and reductions in fraudulent activity.
Person-to-person (P2P) payments will be the first service rolled out by the new network, but the consortium expects business-to-consumer (B2C) and business-to-business (B2B) services to follow soon. According to Chesapeake’s Seeterlin:
“We know our customers make payments for services and products to micro-businesses like lawn service, craft fairs, and others using P2P systems like Venmo, CashApp, and Zelle. We think we can help banks be part of those transactions again, and not abdicate our role in payments to non-banks. We can also create compelling use cases to help make our small business customers’ lives easier. Our support for faster payments like RTP will play a big part in this.”
The Time is Right for Real-Time Payments
Faster payments is one of the top trends in banking and fintech for 2o22. According to a new study from Cornerstone Advisors, 31% of banks and 24% of credit unions plan to implement real-time payments in 2022.
It’s just one aspect of a broader trend for 2022: Payments modernization, which is fundamentally about generating more (non-interest) revenue for banks, which will be a huge focus for financial institutions in 2022.
According to Dimitri Dadiomov, CEO of Modern Treasury:
“Accelerating the deployment of real-time payments puts those at the front at a competitive advantage to secure more of tomorrow’s fastest growing companies, who are looking for this capability.”
Chris Nichols, Director of Capital Markets at SouthState Bank (another member of the CHUCK consortium), agrees:
“The amount of new products that can be spun off of RTP can make an innovator’s head spin. It’s the data in the messaging of RTP that will alter a bank’s trajectory.”
Is It the Right Time for a New Payments Network?
The consortium’s timing for launching a new network couldn’t be better (although, I guess it might have been better if it had launched before Zelle came to market). In an interview for Cornerstone Advisors’ 2022 What’s Going On in Banking study, Geoff Forshag, Director of Product and Strategy at Washington Trust Bank—who was unaware of the CHUCK announcement—commented:
“The industry needs to be more proactive in driving payments standards and solutions rather than letting the Too Big To Fail organizations create their own rails and/or networks as proprietary solutions.”
Zelle’s goal to achieve industry ubiquity is impressive, though, with nearly 1,700 financial institutions in its network, reaching nearly three-quarters of all checking accounts in the US.
The new network doesn’t expect all participating community banks will switch away from Zelle. According to Chesapeake’s Seeterlin:
“Many banks will choose to implement CHUCK instead of Zelle. At Chesapeake Bank, however, we’ve made the strategic decision to support both solutions. This is part of our strategy to be where our customers are.”
The consortium will need some marketing horsepower, which it will get with Alloy Labs Alliance managing the network and from Payrailz, a digital payments company, as their partner in the new payment network.
The consortium will also need some help from credit unions as participants in the network. This could be a touchy subject, as there’s little love lost between banks and credit unions these days.
But when asked if the consortium would be open to including credit unions, Reading Coop’s Thurlow responded, “I don’t see why not.”
I could give you a few reasons why not, Julie, but I’m encouraged to see the willingness to be open, because, well, it wouldn’t really be an “open” network if credit unions couldn’t be part of it.
One potential benefit of including credit unions: They tend to collaborate to innovate, And that’s something that community banks need to do more of if “chucking” someone money is going to become the new verb.