A twist on person-to-person payments is showing surprising strength in the banking market.
The service, which some call "me-to-me," involves cash transfers between two different institutions for customers who have accounts at both. Its transaction volumes are topping expectations, and bankers and others say that offering it provides competitive advantages.
A common use for this service is to manage money online at a bank that lacks nearby branches, but still keep an account nearby for faster deposits and withdrawals, banks say.
Jerry McCoy, NetBank Inc.'s chief capital markets executive and chief product management and customer segmentation executive, said coupling me-to-me transfers with features such as an account aggregation screen that includes outside accounts "allows the consumer to have a complete financial picture and move money where they need to."
Mr. McCoy said that most NetBank customers who use the feature link it to accounts held at brick-and-mortar institutions but that a good number of them use it to link brokerage accounts.
Despite these companies' experiences, some banks have balked at me-to-me-type payments for fear that customers would transfer money out in search of higher-yielding alternatives.
Celent Communications LLC said in an April 2004 survey report that 14% of banks polled (all but one of which was a top 50 bank) offered an account-to-account service and that an additional 48% were considering offering the service in the next 12 months. In that time giants such as Wells Fargo & Co. and Bank of America Corp. have started offering versions of it.
Though the Atlanta-based NetBank allows only inbound transfers, banks that permit two-way transfers, such as Citigroup Inc. and E-Trade Financial Corp., say that most transfers are inbound.
Citi says that as many as 85% of transfers each month are inbound; CashEdge Inc., which provides the service for Citi, says the average among its customers is 75% inbound.
E-Trade says that though its online transfer tool also allows transfers among E-Trade accounts, most transfers come from external accounts.
CashEdge, which provides the transfer service and the underlying risk management to its bank customers, says it expects to transfer $6 billion for those banks' account holders this year. Conventional online person-to-person payments totaled $600 million last year, according to Beth Robertson, a senior analyst at MasterCard International's TowerGroup Inc.
CashEdge me-to-me transfers are made over the automated clearing house system and initiated by the bank that offers the service. CashEdge, which has been in business since 1999 and started offering the me-to-me service in 2001, manages the risk for its customers. Banks that are not CashEdge customers generally develop the service and mange the risk in-house.
Sanjeev Dheer, CashEdge's president and chief executive, said the amount the New York company's transfer volumes have "far surpassed … some of the projections."
Online banking has allowed customers to consider banking relationships previously unavailable to them. For example, Citi has said that 40% of its approved online applicants do not live near its branches.
Ms. Robertson said that though CashEdge's current $3 billion run rate is a fraction of the overall volume for transfers, "it's still significant from their standpoint and the standpoint of what's happening in the Internet market." Total account-to-account transfers, including those initiated in offline channels, were $736 billion in 2004, she said.
And the average me-to-me transaction is $1,000, CashEdge says, against the $50 average that Ms. Robertson estimates for person-to-person payments. For online bill payment the average amount is $308, Ms. Robertson said.
She said person-to-person is the best service to compare with online account-to-account transfers "because it's very similar," and early on many banks saw the two as part of the same service.
Ms. Robertson said customers prefer online transfers to alternatives such as wire transfers because "the transfer can happen more rapidly in the Internet environment and in many cases does not have a fee."
