P2P payment innovation in community banks

You’re going out to dinner with a friend and want to split the bill. But your friend uses a community bank and you use one of the major peer-to-peer (P2P) payment apps, so getting paid instantly online is complicated. Enter CHUCK, a new payment solution designed to open up closed networks like Zelle, PayPal, and Venmo.

CHUCK is the result of Alliance of Alloy Laboratoriesa group of nearly 60 community banks working together to innovate as the industry faces a shrinking footprint – following the rise of interstate banking and years of consolidations, the number of community banks has fallen by more than half since the 1980s. Digital innovation from industry giants, meanwhile, is driving the younger generation away from community banks, especially those that have bypassed services like Zelle, says Richard CroneCEO of Crone Consulting LLC.

Available for US banks, CHUCK presents itself as an open network for instant payments. It offers financial institutions “a choice when it comes to providing instant payment capabilities,” says jason henrichs, CEO of Alloy Lab. These establishments “must no longer be satisfied with a more expensive, restrictive and closed network”.

The network was unveiled with backing from a handful of community banks, including Reading Cooperative Bank, a $730 million Massachusetts bank said to have been instrumental in leading the effort; Mercantile Bank of Michigan, with approximately $4 billion in assets; American State Bank, based in Iowa with $1 billion in assets; and Citizens & Northern Bank, a $2 billion player in Pennsylvania. CHUCK is expected to expand to other banks this year.

CHUCK is integrated with existing mobile and online banking experiences of participating institutions. The sender clicks a button to send money to another person, enters the person’s phone number or email address (if they haven’t sent them money yet), adds the amount to send, then press “send”.

Although CHUCK follows the same sending process as Zelle and other closed networks, it eliminates the need for the sender and receiver to use the same network. It also eliminates the need to open another app if you’re already using a P2P app, Henrichs says. The recipient receives an alert and chooses where the funds go without having to download an app or open an account, Henrichs explains. And senders don’t need to join or download a separate app either: if their institution offers CHUCK, they can start sending payments directly from the bank’s existing mobile app or online account.

Did he really need another method of payment? “Closed networks are great for the network operator, but not necessarily for the users,” says Henrichs. “Building a more customer-centric approach and promoting the inclusiveness of digital payments are the main goals of the new network.”

Certainly, some community banks are happy to join closed networks. Early Warning Services LLC, Zelle’s network operator, reported that 85% of its network participants are regional and community institutions with assets of $10 billion or less, with the vast majority holding assets of $1 billion or less.

But CHUCK is built on the desire for openness. “There are still unmet needs in the world of payments”, Henrichs wrote in a recent blog post. “We also believe that meeting these needs should not be about creating another private network, but about connecting those who have not opted into a P2P network to this digital world.”

CHUCK maintains that it is not a low-cost version of Zelle, “even if it proves to be more profitable for the participating banks”, points out Henrichs. Without this effort, he says, “the largest institutions and incumbents (Venmo, Cash App, and to a lesser extent PayPal) would have a very concentrated hold on the future of payments. Banks below the top few, credit unions, most fintechs and non-financial institutions that need to move money would depend on these other players for access and innovation.

While Crone says avoiding Zelle’s cost is seen as the problem that CHUCK solved,

he says a bigger potential problem for community banks in the longer term “falls even further behind when solutions exist today, (which is) critical to retaining and attracting younger cohorts for the acquisition of new accounts”.

Dawn Wotapka is a BAI Contributing Writer.

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