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FIS Acquires Clear2Pay, Possibly to Speed Up Development of Payment Network ACH Alternative

FIS Inc. announced the acquisition of Brussels-based payment technology company Clear2Pay for €375 ($493.3) million in early September. While the company announced the investment would bolster global payment capabilities and enhance enterprise payments solutions, the most interesting aspect of the acquisition may be the fact that FIS offers a real-time funds transfer service called PayNet while Clear2Pay has been involved with major payment system shifts such as SEPA (Single Euro Payments Area) and UK Faster Payments. The strategy behind this acquisition may be focused on the further development of a real-time funds transfer network to compete with NACHA.

The PayNet services falls under FIS’ payment network solutions and provides the ability for financial institutions to process instant person-to-person, account-to-account and wire transfers. The service offers real-time funds transfers riding on the EFT (Electronic Funds Transfer) rails that support ATMs and debit cards. They even position the product as a way to expedite bill payments replacing ACH. General Manager of PayNet, Peter Gordon, said there will be 500 banks on the network by the end of this year and by that time all of its banking core systems will be equipped to handle real-time transactions.

While bank account based payments in the United States have relied on the ACH network for decades, the Federal Reserve Banks have voiced their recommendation that FI’s move on to a whole new infrastructure. The issue is that this is a significant investment and likely does not yield the financial institutions a worthwhile ROI. The major financial institutions that are part of NACHA have been reluctant to move to real-time payments, and this has created opportunities for non-bank networks like FIS’ PayNet.

In a press release from FIS, Gary Norcross, president and COO, was quoted saying that the “strategic acquisition [of Clear2Pay] demonstrates our commitment to delivering the technologies and assets that will enable our clients, especially large and global institutions, to realize a truly modern payments environment.” The acquisition is strategic, indeed, as it brings a company that was involved with major payment system evolutions and shifts including the Single Euro Payments Area (SEPA) and UK Faster Payments, under the FIS umbrella. The latter initiative is very relevant as it reduced payment times under the UK’s BACS system taking 3 business days to a few hours under Faster Payments Services (FPS).

Clear2Pay’s Director of Product Management, Elena Whisler, in response to a request for comments from the Federal Reserve, wrote that “the US payment system is faced with the need to change to meet business needs, but cannot do so without a major shift in how the payment system is run.” It could be that FIS is preparing to initiate this major shift with their real-time transfer services and nearly half-billion dollar acquisition of Clear2Pay.

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