Obopay Inc. has struck a deal to route person-to-person transfers over First Data Corp.'s Star debit network, which accelerates the payments and could make the service more appealing to bank customers.
The Redwood City, Calif., company is set to announce Wednesday that it can deliver instant, person-to-person payments between accounts at banks that are connected to the Star network.
This agreement is the latest step in Obopay's transformation into a vendor to U.S. banks and away from its original model of offering its services directly to consumers.
Obopay has long offered person-to-person transfers directly to consumers, who could use their mobile phones to send each other funds through the automated clearing house system.
David Schwartz, Obopay's head of product and corporate marketing, said that people who turn to their mobile devices to make payments typically do not want to take the time to go back to their computers. To ask users to wait several days for an ACH payment to settle was not delivering on the promise of mobile.
"There's an expectation of instant, particularly when it comes to mobile," Schwartz said.
To reach a wider audience, said Michael Diamond, Obopay's senior vice president of business development, the company has recognized that it makes sense to target banks instead of consumers and that it must offer faster transactions.
"As far as the financial institutions are concerned, they want to make sure that the value proposition for their consumers is as strong as possible," Diamond said. Faster payments are "more attractive for the financial institutions."
The agreement also addresses a pain point for Star, which introduced its own person-to-person payments system, the Star Expedited Transfer Service, nine years ago and has struggled ever since to build a strong market for it.
Julie Saville, Star's vice president of product management, said that its service was ahead of its time but that the market has since caught up. Besides Obopay, several companies, including Fiserv Inc. and CashEdge Inc., offer transfer services to banks, and a growing number of banks are rolling out the service.
"We were thinking too big, too soon," Saville said.
She also said Star's original service was hard for banks to integrate into their online services but that this is not an issue with Obopay, which is already designed to integrate with banks' software; Star's expedited transfer service also can be woven into this system.
Without a partner like Obopay, "it's a lot of work for … [banks] to integrate this into their online banking channel and offer this on a mobile device," Saville said.
So far, the pairing seems to be working; some banks have already agreed to offer the service, though Obopay and Star wouldn't name them. (First Data is a unit of Kohlberg Kravis Roberts & Co.)
To send Obopay transfers over the Star network, customers of participating financial companies must first enroll their debit card.
Customers of banks that send debit payments over Star but do not choose to offer Obopay could still use the service by enrolling at Obopay's website, though in practice, observers said, few are likely to do so, in part because they might not even be aware the service exists if their banks are not promoting it.
Star serves 4,800 financial companies and, through them, 80 million cardholders, Saville said.
Once enrolled, users can initiate transfers with a mobile phone or online. Funds move instantly from their bank accounts to Obopay, and if the recipient is also at a Star bank, the second leg of the transfer could also be instantaneous.
