These services, which let people send each other money through their phones, have been available in the United States for several years but have not caught on with huge numbers of people. Bankers say earlier models, which required U.S. consumers to open separate accounts just for sending and receiving mobile transfers, proved incompatible with how people want to manage their money.
But now, several major financial companies are developing services that let people transfer funds directly to and from their primary bank accounts. This new model could let mobile phones function as a cash replacement for many day-to-day transactions, these companies say.
"P-to-P mobile transfers are inevitable in the United States," said Jeff Semenchuk, a Citigroup Inc. managing director and the head of its innovations growth ventures team. But for the technology to catch on, these services must be "linked to the account people use."
Early Lessons
Citi probably has more experience with mobile transfers than any other U.S. banking company. It began testing in 2007 a service based on technology developed by Obopay Inc.
Users had to establish separate accounts that they funded with Citi-branded credit or debit cards. They could use their phones to send money to other people's transer accounts, and recipients could spend the money using a dedicated Citi debit card linked to the account.
Semenchuk said the test proved that the system worked but also revealed that users found it cumbersome to use an intermediary account just for mobile transfers. "Users asked us, 'Why can't we make this a part of my existing account?' " he said.
So that's what Citi did.
The company began another test a year ago that let customers send each other money by linking the transfer software directly to Citi's accounts. The transfers are routed through the same network Citi uses to process automated teller machine transactions and typically settle in less than a minute. Semenchuk said the two tests have attracted "thousands" of users, but he would not be more specific.
Citi has learned two more critical lessons about what could make a mobile phone transfer service appealing to the masses, he said. First, the application should be incorporated in the company's existing mobile banking software; requiring people to install one application to check their balances and another just to transfer funds is almost as clunky as forcing them to use a separate account, Semenchuk said.
And perhaps more importantly, the bank should expand the system to other financial companies.
"People said that not all their friends are Citi customers. They want to be able to send money to anyone," he said.
"This needs to be connected to the way I use my phone every day. Until that happens, it really limits the functionality."
An Open Network
That's the goal MasterCard Inc. and Visa Inc. are pursuing.
MasterCard in June introduced its Mobile MasterCard MoneySend service, which also is based on Obopay's technology. The long-term vision for MoneySend would have customers using phones to send each other funds from MasterCard accounts, including credit cards, prepaid cards and debit cards linked to users' checking accounts.
But that kind of broad service is still in the future. People can use the MoneySend service now through phones, not with their primary accounts but with prepaid cards issued by Bancorp Inc. in Wilmington, Del. — much like the earlier model that has failed to catch on with consumers.
Art Kranzley, MasterCard's chief emerging-technology officer, said that MoneySend is a significant advance over the earlier model because it will eventually be able to connect people at different banks through their primary checking accounts. The Purchase, N.Y., payments company expects more issuers to begin offering the service this year and to connect it to users' demand deposit accounts.
"It's got to be simple, convenient and work with the banking relationships I already have. People can't be expected to jump through hoops just to send and receive money," he said. "Bankers don't want to offer this service just to their accounts. It's limiting."
Visa also is working on a general-purpose mobile phone transfer service for the U.S. market.
It already offers in some parts of the world, though not in the United States, its Money Transfer service, which lets customers of participating issuers move funds to or from any Visa account. Forty-nine banks in 13 countries offer it, but none currently do so through mobile phones.
However, Kelly Alpert, the head of Visa's global money transfer initiative, said phones are on the radar. "We definitely think the mobile channel will be key for money transfer," she said.
Person-to-person transfers are handled much the same way as purchases made with Visa cards, Alpert said; both move funds from one account to another. (The exception is that anonymous gift cards cannot receive transfers, for regulatory reasons.)
She also said that adding transfer capabilities to phones is not a big leap from offering the service online or through a branch. "We're not sending money from phone to phone. We're sending money from financial account to financial account," she said. "Mobile is another initiation channel that can be used to send instructions."
A Cash Replacement?
In the United States, U.S. Bancorp began testing a mobile phone version of the Money Transfer service with employees last year and expanded the test to include friends and family members this summer.
Dominic Venturo, the chief innovation officer for the Minneapolis banking company's retail payments solutions division, said that mobile transfers can be just as convenient as cash for some transactions, and more convenient than some other payment methods.
Mobile P-to-P services are a good fit for informal payments, he said, between friends and family members, for example, or for low-value transactions between people who have an established relationship such as paying baby-sitters or participation fees for clubs or sports teams.
Venturo uses it when he has to repay colleagues for minor expenses, such as lunch, and other U.S. Bank employees have signed up for the service so they can send money to children who are away at college.
Citi's Semenchuk once ran out of local currency during a business trip to India; after borrowing some rupees from a colleague, he repaid him in U.S. dollars with his phone "from the back of a taxi in Delhi."
Though these are niche applications, Venturo said they show how mobile P-to-P services are helping early users make payments that could previously be handled only with cash or checks.
"People register" for the trial "because they have a need that is not being met in another way," he said.
And though cash is always easy to use, the mobile service is often more convenient for recipients than checks. "If I receive a check, it means that I have to do something with it," he said. "If we expand this all the way out, to connect any Visa card to any Visa card," the funds will go directly into users' accounts, and "it increases the odds that you don't have to ask someone to do something differently" to receive and spend money.
One thing still to be worked out is the revenue model; Venturo said U.S. Bank has not decided whether it should charge users a fee to send each other money. He would not say how many people are involved in the trial.
CashEdge Inc., a technology vendor that offers account-to-account transfer services to banks, is also pushing a mobile P-to-P service. It announced in June its POPmoney service that banks can offer to customers.
Neil Platt, the company's senior vice president and general manager of banking, said its first bank user should roll out the service in October and that three to five banks should be offering it by yearend.
POPmoney lets customers of participating banks send money through their phones to anyone with an e-mail account or mobile phone.
'Snacking'
Lisa Stanton, the chief executive of the mobile banking software company Monitise Americas LLC, said these P-to-P services are still developing, and once they become more widely available, people will find new ways to use them.
Most mobile banking services available today simply mirror capabilities available online, she said, but giving people the ability to pay each other on the go is something totally different.
Mobile transfers can "further eliminate cash from the market," she said. "It's absolutely a game changer." Monitise Americas is a joint venture of Metavante Technologies Inc. and the London mobile banking software provider Monitise PLC.
Richard Johnson, Monitise PLC's chief strategy officer, said mobile banking applications are ideal for "snacking," that is, satisfying people's need to make just one or two quick transactions.
When people want to take care of more significant banking activities, they will probably go online, he said; but when people are rushing around, phones let them take care of immediate needs, anytime.
"If I owe you $20 and I'm not standing next to you," a mobile phone is "the easiest way," he said.
Though Johnson said that mobile P-to-P transfer services will probably be useful only for certain specific types of transactions, "when you need to make one, it will be incredible."
Bruce Cundiff, a director of payments research and consulting at Javelin Strategy and Research, said mobile transfers have had a rough start in the United States, and though these services are not big yet "we are at the point where they could be."
Obopay has been a driving force in mobile P-to-P in the United States. Its service, introduced in 2006, lets people use their phones to send money to and from dedicated Obopay accounts. It later added automated clearing house capabilities that let users send funds directly to bank accounts, though these transactions settle more slowly than sending money to an Obopay account.
Market-watchers found the idea intriguing but were dubious about whether people would want to use a separate account.
But Cundiff said that MasterCard's effort to connect the Obopay system to banks can make the service much more useful. "MasterCard is creating an ecosystem" for mobile transfers, he said. "That's when we go from Obopay being a joke to potentially" getting widespread use. "Once we get four or five big MasterCard debit issuers to accept mobile P-to-P, it immediately becomes a utility."
Even Obopay recognizes that its initial model may not be the one that catches on with consumers. (The company has never said how many people use its system.)
Mike Diamond, Obopay's senior vice president of business development, said that his company's name "could become less important" as more banks start offering mobile P-to-P services and Obopay becomes more of a behind-the-scenes provider handling the transactions than a consumer-facing company that asks people to open "Obopay accounts."
"By and large, financial institutions are in the very best position to provide this service to consumers in the United States," Diamond said.
