A new generation of person-to-person money transfer services is quickly gaining traction with banks, offering a way to regain a share of the electronic payments that was ceded long ago to nonbank rivals.
These services make it easier to send money to other people than with existing methods, and some executives say they could become a new source of revenue at a time when banks are eager to find additional ways to generate fee income.
The model is still evolving; some banks are already offering these transfer services online and many plan to make them available through mobile phones in the near future. Most payments executives agree that electronic person-to-person payments have the potential to change the way consumers interact with one another and with their banks.
Thomas S. Kunz, a senior vice president and director of payments and e-business at PNC Financial Services Group Inc., said P-to-P payments are dominated by nonbanks, but the new transfer services could make banks a more significant force.
"Banks are losing the battle as person-to-person transfers become electronic," Kunz said in an interview Thursday. "We're focused on Gen-Y, tech-savvy customers. They already have a large, nonbank alternative, called PayPal." To date, however, there has been "no good electronic alternative that the industry can get behind," he said.
PNC was one of two banks that switched on P-to-P transfer tools this past Saturday night, using CashEdge Inc.'s POPmoney service, the first to do so since the New York transfer technology provider introduced it in June. PNC and BancWest Corp.'s First Hawaiian Bank now let online banking customers send funds to a recipient's e-mail address or mobile phone number.
Kunz said that a convenient, electronic P-to-P service would make the bank more relevant to customers, especially young people who handle much of their daily activities online, including their finances. "We are trying to get the primary payment relationship with Gen-Y customers," he said. "If those balances can stay with us and those transactions can occur through us, that's what we want."
He said PNC has offered for about six months another CashEdge transfer service that requires senders to know recipients' account numbers and their banks' routing and transfer numbers. About 5% to 10% of PNC's active online banking customers use that service, but he expects about twice as many will use the new service.
Neil Platt, CashEdge's senior vice president and general manager of banking, said people can initiate POPmoney transfers online or through mobile phones, and though PNC and First Hawaiian are both offering only the online service now, both plan to add the mobile feature next year. The funds are sent across the automated clearing house network.
Including PNC and First Hawaiian, he said seven financial companies have already signed on to offer POPmoney and he expects one more contract this month. Three to four companies should go live in the first quarter, including the Seattle credit union BECU, which is expected to be the first to offer the mobile phone version. Besides PNC, another top 10 bank is expected to roll it out in the first half of next year. "Banks are really getting excited about" P-to-P transfers, he said.
One key reason is that it can generate fee income. "We do expect that some banks will charge people to use" the transfer service, Platt said.
First Hawaiian is charging users $1 for each transfer, according to its Web site; the Honolulu company declined to provide an executive for interviews. CashEdge charges its bank clients a per-transaction fee to handle the payments.
S1 Corp. has also introduced a P-to-P transfer service this year, and Mark Moore, its vice president for strategy and development said that banks could choose to impose fees strategically, offering free transactions to their best customers, for example, and charging others. "Banks are the ones that have the opportunity to charge for this service," he said. "Or they could use it as an opportunity to hook a different segment of users. They could charge some people and waive the fee for some people."
The S1 service lets people initiate payments online or through a mobile phone; the funds are drawn from the senders' bank accounts and delivered to recipients' accounts with eBay Inc.'s PayPal Inc. The technology is built into S1's mobile banking software, and the vendor does not charge clients any additional fee to handle the transactions.
Some bankers are less interested in the potential for fee income than in the chance to develop customer relationships.
"Nonbanks see this service as a business, and I think time will tell that it's not," Kunz said. "It's a way to help get a payments relationship with a household."
John Schulte, a senior vice president with Mercantile Bank of Michigan and its chief information officer, said that offering electronic transfers, even for free, can cut his expenses. The Grand Rapids company plans to roll out the S1 service toward the end of the first quarter.
"There is a cost to the bank" to offer electronic transfers, but there are costs for other payment methods as well, he said. "This is cheaper than checks, debit, credit or ACH."
