Mobile person-to-person payments systems could be the elusive key to reaching Gen Y, once the emerging networks manage to bridge a few significant gaps.
Several payments companies are developing systems that let people electronically send each other money with mobile phones. These networks are big, but they are not connected, and though observers said that this limitation is not a big issue today, it will have to be addressed before the technology can become a mainstream financial utility.
The newest player to enter the fray is Fiserv Inc., which gave a first look last week at its upcoming P-to-P transfer service. CashEdge Inc., which introduced its own service in June, said last week that four banks, including one of the top 10 by assets, are expected to be offering it by yearend.
They join a growing number of financial companies — including Citigroup Inc., MasterCard Inc. and Visa Inc. — that are developing or testing mobile phone systems to route money in and out of users' bank accounts.
For their part, recognizing that other electronic communication tools are just as crucial in the modern world, Fiserv and CashEdge have also incorporated e-mail into their systems.
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," the 48-year-old Yabuki said.
Though Gen Y accounts for only 9% of transactions today, he said, its members are likely to be making 40% of transactions in five years. "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."
Fiserv said it expects to introduce the service formally next month at the Bank Administration Institute's Retail Delivery conference in Boston. Steve Shaw, Fiserv's director of strategic marketing, said that when the service becomes available in the first quarter as many as 2,500 financial companies will be on board, letting customers send funds to people with accounts at any of the other participating banks.
This is the model prevailing today; Visa is developing a system that would let people send funds to and from any Visa account (except anonymous prepaid cards), and U.S. Bancorp is testing Visa's Money Transfer service.
MasterCard announced in June its MoneySend service, which would let customers of participating MasterCard issuers send each other money, though it has yet to announce any bank that is offering this capability.
And Citi has tested a service that lets its customers send funds to one another.
As the range of options grows, it is becoming increasingly obvious that each network exists as an island, but with no bridges between them, said Richard K. Crone, the founder of Crone Consulting LLC in San Carlos, Calif. Visa or Citi may be pretty big islands, but they are not everywhere you might want to be.
However, Crone said, for now, these independent islands may be big enough. "If Fiserv can launch with 2,500 institutions, they can create their own network."
Yabuki said that these nascent networks are still evolving and most likely will eventually link up. "Those questions will be answered over time as these networks grow up and become material enough to make that happen," he said.
A potential hurdle is security.
Yabuki expressed some concern about transactions that travel across multiple networks and whether banks would be able to verify the recipients of funds in a way that meets their obligations to "know your customer" and guard against money laundering and terrorist finance.
Another issue is the business model. Some services, such as Citi's, charge senders a fee (25 cents for transactions up to $50, and 1.5% of the amount sent for larger transfers), as does Obopay Inc., the company that developed the technology at the heart of both the Citi and MasterCard systems.
Fiserv, for its part, did not address the question when it demonstrated its service at the Finovate 2009 conference last week in New York, which was sponsored by Online Financial Innovations of Seattle, the publisher of Online Banking Report and the blog NetBanker. And U.S. Bank has said it remains undecided about whether to charge a fee.
Both CashEdge and Fiserv let users sign up for their services online by supplying their bank account information along with their mobile number or e-mail address. Once enrolled, people can initiate transfers online or with their mobile phones, directing funds to recipients' mobile phone numbers or e-mail addresses.
CashEdge's POPmoney works through text messaging applications, as well as downloadable mobile applications, CashEdge said. It is available as an upgrade of the company's TransferNow service, which is used by hundreds of financial institutions, including seven of the 10 largest banks, and which processed nearly $50 billion in online funds transfers for bank customers in 2008.
Fiserv's Personal Payment Service can be used not only to send but also to request money from others, including groups, Shaw said. For example, a soccer coach could send a mass e-mail to players' parents requesting funds to buy jerseys.
"You can do it all within the familiarity of the online banking site," Shaw said. After users enroll online, they can then use their mobile devices to send money as well.
"Because we are Fiserv, we want this to be as bank-centric as possible," Shaw said.