Friday, May 30, 2008
In an effort to provide better value in more cost-effective ways, Wells Fargo & Co. and Bank of America Corp. agreed to a joint venture in May 2008 to operate a single, combined automated clearing house (ACH) platform. The new company, Pariter Solutions LLC, will become the country's largest processor of ACH receivables.
Pariter (Latin for "together") will allow BofA and Wells Fargo to gain economies of scale by eliminating single bank platforms, which will reduce unit costs and overhead. The economies of scale – a combination of increased transaction volume and a reduction of platform support costs – are expected to double with this partnership. Company officials expect payment processing operations to begin in late 2009.
Pariter's initial charter is to process only for BofA and Wells Fargo, but its platform may eventually be available to all financial institutions (FIs).
The formation of Pariter "is obviously a solution for BofA and Wells Fargo to address their needs, so the impact will initially be limited," said Jennifer Roth, a Senior Analyst with The Tower Group Inc., a financial research and advisory firm. "But nothing is stopping them from rolling this out to other FIs as a consolidator or opening this up to other originators and receivers within the ACH network.
"There is a potential for top firms like JPMorgan Chase and Wachovia to begin exchanging directly with BofA and Wells, moving off platforms like CheckFree's PEP+ and onto Wells Fargo's proprietary software."
Roth speculates Pariter could change the competitive landscape and impact processing providers like ACI Worldwide Inc., CheckFree Corp., Goldleaf Financial Solutions Inc., and U.S. Dataworks Inc.
"Depending on the build-out of Pariter's settlement capabilities, the company could also compete with the Federal Reserve's FedACH product as well as the EPN [Electronic Payments Network]," Roth said. "Other banks are going to look at this whole outsource as a way of reducing costs and possibly exchanging items faster, rather than through the Fed or an EPN."
The EPN is an ACH that provides functions similar to those of the Federal Reserve Bank; it is the only private sector ACH operator in the United States.
Though implementation of Pariter's platform with other FIs may have potential for success, BofA's and Wells Fargo's initial vision is simply to create a more comprehensive, cost-effective and faster ACH platform. Wells Fargo Senior Vice President Stephanie Sturgis-Griffin is optimistic about the new venture. She is also Pariter's Chief Executive Officer.
"I think that both of us [BofA and Wells Fargo] felt that we were aligned on where we saw the future of payments and particularly how ACH will play into that future," Sturgis-Griffin said. "It was important to think about payments in a way that allowed us to drive better value to our customers.
"Most bank legacy platforms in this space were built to support only one bank, so we will make changes in order to provide support from a processing as well as an information security perspective, with multiple banks being able to leverage it. On a personal level, I am focused on getting both banks on the same platform and helping them to realize a reduction in processing costs that both expect to achieve with this joint venture."
Wells Fargo has a proprietary payments platform, which will be the foundation for the Pariter platform. Sturgis-Griffin said Wells Fargo would make certain enhancements to the current system, allowing Pariter eventually to support multiple FIs.
"I think this is ultimately a good thing for ACH," Roth said. "It's definitely upping the competition, which is always good. It will also be interesting to see what kind of efficiencies come from Pariter's focus on faster processing times and more frequent batching time periods, as well as what directions Wells Fargo and BofA take with regard to added customer services and other new products."
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