What would you do if a member wanted to move money from his checking account at your credit union to a brokerage account elsewhere? Would you a) tell him to write a check and mail it; b) try to convince him to keep all of his funds with the credit union; or c) give him the ability to make the transfer through your Internet banking service?
Option "c" may strike fear into the hearts of many credit union industry professionals. But others recognize this capability-known as A2A (Account to Account) transfers-as the next must-have Internet functionality and a natural step in the online banking evolution.
'Me-To-Me' Transactions
A2A transfer-sometimes called "me-to-me" transfer-is the ability to move funds electronically between two accounts owned by the same person, but held at different institutions. Members already move funds between accounts at their credit union through the Internet, phone, and ATM. And they've clearly shown a penchant for managing money online, as the adoption figures for Internet banking attest. So it's only natural that many members-especially the tech-savvy "e-members"-will expect the freedom to transfer funds online between their accounts at different institutions.
But should credit unions be so quick to grant their members that freedom? After all, couldn't it work out that all of the transfers made will move money out of the credit union, draining its deposit base? That's precisely what some credit unions fear. Yet, the experience of financial institutions that offer A2A shows those fears may be unfounded. In a banking trade journal, Citibank reported that about 75% of its A2A transfers are inbound (which are free). And E-Trade Bank says its A2A processing costs are more than offset by higher balances carried by customers who use the service-the same customers with a low attrition rate.
Credit unions that are fearful of offering A2A transfer should keep something else in mind: Electronically-oriented members tend to be more profitable. And the most profitable members are unlikely to have all of their financial eggs in one basket. So while it would be nice to have all of their funds under one (credit union) roof, it may not be very realistic. If you make it too difficult for e-members to manage their funds as they'd like, they could jump ship to a competitor who is willing to make it easy.
You can certainly see how e-members might generate strong demand for A2A transfer, as it eliminates the kind of steps they dislike, such as writing and mailing checks. But once credit unions get past the fear of potentially losing deposits to competitors, they'll see advantages on their side as well. The addition of A2A can help the credit union remain competitive, especially with other institutions that already offer the service. It can help retain a member's direct deposit and checking account, which are crucial to PFI (primary financial institution) status. It also can turn the credit union into the member's financial "hub"-a goal that account aggregation once promised, but never quite delivered.
The potential advantages to the credit union are many. But before you leap into A2A transfers, you'll have several decisions to make. One is whether to charge fees for the transaction. Much like bill payment, there are various schools of thought on how to charge for A2A transfers. Some institutions keep the service free; others charge a fee for all transfers, often to discourage the practice. Still others take a hybrid approach-charging a fee for outbound transactions that take funds out of the institution, but no fee for inbound transfers. The fee for outbound transfers is sometimes positioned as a cheaper alternative to wire transfers.
Another consideration is how much risk to assume in the process. A2A transfers require a middleman-a third-party payment remittance provider. In the lowest risk scenario, the provider takes the ACH from the originating account and then waits two days. At the end of the second day, the provider checks the ACH network for returns; if none show up for this account, the funds are sent to their intended destination. A riskier scenario is when you allow the payment remittance provider to pass along the funds immediately, before they've actually cleared-something you might do if a member wants or needs faster turnaround on the transfer. But if the funds don't clear, the credit union absorbs the loss.
A Final Consideration
Security is a final consideration. Just as members do with bill payment, they'll expect the credit union to ensure the security of their A2A transactions. This is accomplished through a verification process that can take one of two approaches. The member can register a counterpart account at another institution online, in real-time, enabling him to make a transfer into that account right away. Or he can handle the verification through an ACH "micro deposit"-making two small deposits into an account at another institution and then verifying the deposit amounts before making a transfer (not a real-time process).
A2A transfer is likely to take its place in the Internet services world alongside bill payment, attracting the type of member who expects fast, convenient options for managing funds. Some of the biggest-name banks already offer the service; and a recent Celent Communications survey of banks reported that 48% plan to add it in the next 12-to-18 months. So while some credit unions may be anxious about the idea, eventually they'll have to face this paradox head-on: If you don't allow members to move their money where they want, they may very well move it all elsewhere.
Randy Riesenberg is VP of Product Services at USERS Incorporated. He can be reached at RandyRiesenberg
