Mobile transfers, long considered a cool concept with few real-world applications, may be the elusive key to reaching Gen Y depositors.
These services, which let people send one another money through their phones, have been available in the United States for several years but have attracted the Main Street customer. Bankers say earlier models, which required consumers to open separate accounts just for sending and receiving mobile transfers, proved incompatible with people's ideas of how they want to manage their money.
But several major financial companies are testing or working on networks that let people transfer funds directly to and from their primary bank accounts, and executives say mobile transfers could become common among plugged-in, on-the-go consumers.
Fiserv Inc. demonstrated its upcoming person-to-person transfer service in October, and both MasterCard Inc. and CashEdge Inc. rolled out similar networks this year that banks can offer to customers. U.S. Bancorp is testing a transfer application developed by Visa Inc., and since 2007 Citigroup Inc. has been testing a service based on technology developed by Obopay Inc.
Jeffery W. Yabuki, Fiserv's president and chief executive, said these early movers are seeking ways to capture business from Generation Y, those 20-somethings who are the first Americans to have grown up with mobile technology and e-mail as integral parts of their lives.
"That group is going to transact in a way that is different from the way I transact," said Yabuki, who is 48.
Though Gen Y accounts for only 9% of transactions today, its members are likely to be making 40% of transactions in five years, Yabuki said. "P-to-P payment services are likely to be one of those vehicles that are used by that group as a regular part of their day," he said.
Citi probably has more experience with mobile transfers than any other U.S. banking company. It first test, in 2007, required users 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 transfer accounts, and recipients could spend the money using a dedicated Citi debit card linked to the account.
Jeff Semenchuk, a Citigroup managing director and the head of its innovations growth ventures team, 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.
In a second test, in 2008, customers could send one another money by linking the transfer software directly to Citi's accounts.
Semenchuk said a key lesson from those tests was that 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," Semenchuk said. "Until that happens, it really limits the functionality."
Other companies are trying to do exactly that. In June, MasterCard announced MoneySend, which would let customers of participating MasterCard issuers send one another money, though the company has yet to announce any bank that is offering this capability.
CashEdge, which introduced a similar service in June, said this month that four banks, including one of the top 10 by assets, are expected to be offering it by yearend.
Visa also is working on a general-purpose mobile phone transfer service for the U.S. market.In some parts of the world, though not the United States, Visa already offers Money Transfer, which lets customers of participating issuers move funds to or from any Visa account. Forty-nine banks in 13 countries offer the Visa service, and though none currently do so through mobile phones, the idea is on Visa's radar.
"We definitely think the mobile channel will be key for money transfer," said Kelly Alpert, the head of Visa's global money-transfer initiative.
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 this summer. Dominic Venturo, the chief innovation officer for the Minneapolis banking company's retail payments solutions division, said 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 good 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 mobile P-to-P when he has to repay colleagues for minor expenses, such as lunch. 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 said he 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," he said.
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.
While cash is always easy to use, the mobile service is often more convenient for recipients than checks, Venturo said. "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.
