The Clearing House Stakes its Claim in Real-Time Payments

Navigator Edition: November 2015
By: Bob Rohr

The real-time payments market is still in its infancy, but recent announcements point to active investments by major players, as well as the emergence of a small set of companies likely to shape the long term trajectory of the market. Last year, The Clearing House (TCH) outlined a roadmap for building a real-time payments system. In late October 2015, TCH announced that it has entered into a letter of intent with VocaLink to help build and deliver key elements of that system. This announcement was closely followed by an announcement that TCH has entered into a partnership with FIS to help facilitate other aspects of real-time payments delivery. Following on the heels of the TCH announcement, Early Warning publicized its intent to acquire clearXchange to deliver real-time payments to financial institutions. These announcements suggest that the real-time payments market is beginning to take shape and moving another step closer to becoming a reality.

TCH is owned by a consortium of the largest U.S. financial institutions and processes ~50% of all commercial ACH volume. After last year’s announced plan to create a real-time payment system, TCH issued an RFP for real-time technology services, ultimately selecting VocaLink, a U.K. based payment system provider, for its experience in other markets. VocaLink built and currently manages the real-time payment system behind the U.K.’s Faster Payment Service, and is also responsible for delivering real-time payment services to Singapore’s FAST network. VocaLink will build the core switch or “rails” for the real-time network, while FIS will provide connectivity to financial institutions.

Figure 1: TCH Real-Time Platform Overview

Fig_1_TCH-Real-Time-Platform-OverviewSource: First Annapolis Consulting analysis.

With its partners, TCH has laid the groundwork to deliver an integrated, actionable real-time payments network (See Figure 1). The network will be built with the customer experience at the forefront, most notably meeting the guidelines issued by the Consumer Financial Protection Bureau (CFPB) and including a number of core consumer benefits (see Figure 2).

Figure 2: Core Consumer Benefits (as stated by The Clearing House)

Fig_2_Core-Consumer-Benefits-(as-stated-by-The-Clearing-House)Source: The Clearing House.

Early Warning (EWS), which plans to acquire clearXchange (CXC), a person-to-person network servicing the largest financial institutions, will be a direct competitor to TCH’s platform. The EWS / CXC platform combines superior deposit account connectivity and risk management / fraud detection capabilities. In addition, EWS announced a partnership with Fiserv to leverage Fiserv’s bill payment network and deposit account connectivity. EWS has stated real-time bill payments will be the first product roll-out, likely in early 2016.

The TCH and the EWS platforms have similar goals – to deliver secure, real-time payments to consumers and businesses. How their platforms will perform, how their services will be priced, and what adoption will look like remains to be seen. Although both companies are in active development, timelines for implementation may vary. TCH has not stated when its solution will be in market, which may give EWS a first-mover advantage to set industry pricing and capture market share.

The partnerships are young and still evolving. In addition, Fiserv and FIS are pursuing their own real-time networks in NOW and PayNet, respectively. With complex market dynamics, successful providers will be those that:

  • Enter the market quickly with a reliable real-time solution;
  • Engage in additional partnerships to strengthen solution, extend network connectivity, and product depth;
  • Contract with third-party applications to reside on the network, leveraging the real-time functionality and helping monetize the network; and,
  • Provide transparent pricing and network participation guidelines.

The industry is facing more questions than answers at this time. Given the complexity of the U.S. payments system and competitive dynamics, multiple real-time networks may co-exist in the future, similar to the card brand networks (Visa, MasterCard, American Express, Discover) today. Alternatively, EWS and TCH could merge their platforms to increase scale and expand reach. How the market will evolve remains to be seen, but one thing is clear: real-time payments in the U.S. are closer to reality.

Sources: The Clearing House, Early Warning, Forbes, First Annapolis Consulting analysis.

For more information, please contact Bob Rohr, Senior Consultant,, specializing in Debit and Prepaid.

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