JPMorgan Chase aims to build Zelle-like network for B2B payments

JPMorgan Chase is trying to duplicate its success with peer-to-peer payments by providing a real-time option for businesses to pay each other and for consumers to make certain purchases.

The bank has launched Request for Pay, which resembles JPMorgan Chase’s earlier effort to help spearhead the creation of Zelle. But where the latter serves as a P2P payments tool, RFP is more focused on the bank’s corporate clients.

The new Chase product enables immediate wholesale payments between companies, or certain consumer-to-business transactions, such as someone buying a car. The bank is piloting the product through an undisclosed fintech partner.

In the auto industry, consumers who don't take out a loan must pay with cash, a cashier's check or wire transfer. Chase wants to replace this with a real-time digital payment. Real-time payments in a car dealership can also speed up other processes, such as setting up the vehicle’s registration.

"There are many inconveniences today because a wire transfer doesn't run 24/7," said Cyrus Bhathawalla, managing director and global head of real-time payments at JPMorgan Chase.

He added that Request for Pay will also provide better transparency about the resolution of business-to-business transactions.

"A corporate would like to know if and when you paid and be told in real time to ship a product or provide a service," he said. "That's not present in all payment types."

But Chase, a founding member of clearXchange, which became the Zelle network, may only be one of the first to apply the model of real-time P2P transactions to commercial payments. Other banks may follow the same pattern.

Initially, Chase will link its RFP product to The Clearing House’s Real-Time Payments network, which also helps power Zelle. That network has more than 150 participants, a $400 average transaction and 60% coverage for demand deposit accounts.

PNC Financial Services Group is offering a solution similar to Chase’s RFP, which is also linked to The Clearing House rail. The chief executives of 21 other TCH banks, as well as the bank technology vendors Jack Henry and Fiserv, have committed to launching similar products focused on commercial payments through the real-time payment network by the end of 2021, said Greg MacSweeney, a vice president at The Clearing House.

More than 250 of PNC's wholesale clients are using The Clearing House's RTP network, mostly to improve liquidity for supply chains and support alternative payrolls.

There's a growing market for real-time payments, providing an incentive for more banks to support faster processing for both consumers and corporate clients. There were more than 70 billion real-time payment transactions processed globally in 2020, which was up 41% from 2019, according to ACI Worldwide. That growth was attributed to the overall move to digital commerce during the pandemic. ACI also projects a compound annual growth rate for real-time payments of more than 23% through 2025.

While consumer-facing use cases such as bill pay have motivated banks to adopt real-time payments, support for real-time business transactions from large banks will create competition that will influence other institutions to get on board.

"It's not just about what JPMorgan Chase is doing today, but how the entire payments channel will develop," said Christopher Marinac, director of research at Janney Montgomery Scott, a Philadelphia-based capital markets firm. He added that other banks will watch what JPMorgan Chase is doing and will follow in some form. "They're setting the tone."

Many businesses need faster access to funds, especially for larger transactions. "I may need all of those funds within 120 seconds or so instead of a couple of hours," Marinac said.

Chase's move comes as other ventures try to take advantage of digital payments technology to clear commercial transactions instantly. The bank technology vendor Fiserv has added an application programming interface that allows businesses to send disbursements and wages.

While the Chase product will initially use just TCH's real-time network, the bank has indicated it will eventually link RFP with other faster payment systems when they become available. That could include FedNow, the U.S. government-backed rail that's expected to debut in 2023.

"We'll integrate with other faster payments schemes,” Bhathawalla said. "We anticipate this capability will run across all rails in the U.S. as well as globally."

But Marinac said JPMorgan Chase could not afford to wait for the Federal Reserve to launch its platform before developing the RFP product. He added that supply chain companies, merchant payments for inventory, and government contract disbursements are potential beneficiaries of real-time payments.

"I think the reason that the RFP initiative at JPM needs to happen sooner is that the Fed’s platform is not happening fast enough and there’s a competitive advantage to banks as 'first movers,' " Marinac said.

There will be an adjustment for businesses that adopt real-time transactions for B2B or B2C uses, requiring tech support from banks or other payment processors. For example, there are single messages that flow at all times and require the ability to reconcile quickly, said Gareth Lodge, a senior analyst for payments at Celent.

"Request for Pay adds another layer," Lodge said. "It is effectively a live communication channel with the customer. Customers can choose to pay now, at a later date, in installments. All great things for the customer but equally an added layer of complexity for the corporate, which needs to be addressed before they too benefit."