Pariter Solutions, the new automated clearing
house joint venture between Wells Fargo and Bank of America, has
the potential to fundamentally change how US banks approach the
issue of payments processing. Truong Mellor
investigates.
Bank of America and Wells Fargo have announced
the launch of a joint venture that will combine the payment
processing systems of both banks, operating a single, combined
automated clearing house (ACH) platform for both companies and
their respective clients. The new enterprise, Pariter Solutions,
will be the largest processor of ACH payments in the US, according
to the two parent companies. The new company is expected to
commence operations by late 2009.
Pariter Solutions will combine the respective
processing technologies of both banks and high payment volumes to
create a single, more efficient platform for payment processing.
Bank of America currently ranks first in terms of volume for
receiving payments while Wells Fargo is second. For the volume of
payment originations, the banks rank second and third respectively
(see tables).

Benefits

“This new shared services provider will deliver high quality and
enhanced payment processing capabilities that reflect significant
efficiencies of scale. It is an important step toward payment
convergence and efficiency in the industry,” said Stephanie
Sturgis-Griffin, a senior vice-president at Wells Fargo, who will
be CEO of the newly formed company, in a statement to the press.
Walter Taylor, a senior vice-president at Bank of America, will be
its chief operating officer.

“The synergies and benefits are really how the
joint venture came about,” Sturgis-Griffin told CI. “Wells Fargo
and Bank of America have a lot of interaction, and over the course
of many discussions both institutions found that they were very
closely aligned as to their thinking regarding the future of
payments in the United States, and how ACH was going to support
that future. That future would involve continuing to make
investments – if each bank had its own platform, they would be
duplicate efforts in terms of core ACH processing.”
“When it comes to electronic payments, there
are a lot of high fixed costs, so scale makes a large difference,”
she adds. “That was another one of the catalysts for the
institutions to think that this venture made sense.”
Aside from the cost-savings benefits the joint
venture will bring, one of the most interesting features of this
deal is the way in which the two banks have approached the issue of
outsourcing their payments processing functions, which has always
been treated as a sacred cow by US banks unwilling to give volume
to their competitors. There is always a certain amount of argument
regarding the extent to which an institution should be
outsourcing.
For two major banks such as Wells Fargo and
Bank of America to be outsourcing a significant payments service
like ACH would be seen as questionable by many, and although the
most conservative onlookers would perhaps still see a joint venture
as a concession of sorts, Pariter Solutions nonetheless does give
the impression of compromise in this respect.
“It is the physical processing aspects that are
going to be happening at Pariter Solutions, deep in the back
office, but the middle office functions – all the customer support
and any interaction with the customer – is all going to remain with
the individual institutions,” explains Edward Woods, a senior
analyst with US-based financial consultancy firm Celent.
“The scale gets to go to the processor,” Woods
continues. “It’s just about efficiency on one level. Once they get
the two streams running consistently, then they can expand from
there into new options and opportunities.”
While Sturgis-Griffin notes that customer
service and interaction remain a sensitive area that banks continue
to feel the need to maintain control over individually, when it
comes to core transaction processing there have already been
several examples of companies working together.
“It’s not unusual for banks to come together
and partner on things like this,” she explains, citing the example
of cheque image and archiving company Viewpointe, which both Bank
of America and Wells Fargo are equity owners in. “We leverage the
archive in different ways, but we continue to leverage the company
for that core functionality that is very similar across the
industry.”
She also adds that through the joint investment
in core processing capabilities, the two banks have been able to
deploy the funds saved in two areas that have more direct consumer
impact.
For the time being, the two banks remain
committed solely to the immediate remit of ‘on us’ ACH processing
and completing the task at hand, but Woods anticipates that they
will eventually be using the infrastructure for further transaction
processing such as between themselves in an ‘on we’ fashion. He
adds that the joint venture will also allow the banks to control
the timing of when transactions will be processed.

US ACH receiving 2007

US ACH originations – 2007

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