Easy money movement like funds transfers and payments is a key desire of most bank customers. With the rise of online banking, this desire has been heightened, with most consumers rating the need for seamless money movement to be among their most important requirements. However, consumers today are faced with a literal smorgasbord of choices for money movement, including multiple offerings from banks and specialized non-financial companies, as well as their own continued use of cash and check writing to affect transfers or payments. The result is a tremendous opportunity for streamlined, online money movement that looks more like FedEx than the IRS.
Today, most financial institutions offer wire transfers, online bill pay and funds transfers between accounts within the bank. While the banks have started to offer other types of funds-transfer services, the progress has been slow. Other non-financial institutions offer specific types of money movement services such as cross-border transfers (Western Union) and online purchases (PayPal). Some of these specialized services have been growing rapidly over the last few years. Despite this, consumers continue to use checks for a majority of their money-movement needs. Not surprisingly, this landscape of money-movement services is very confusing for consumers. Just within the electronic services offered by the banks, consumers do not often understand the differences. "Should I use a funds transfer or a wire transfer? How can I efficiently set up routine payments to a third party? Why are some transfers free and others not? Is online bill pay the same as third- party funds transfer?" The result: customer dropoff rates from funds-transfer services that average well over 50 percent.
This cornucopia of funds-transfer services, coupled with the growing use of the Internet for online banking, offers banks an unprecedented opportunity to rethink the way they approach online funds transfer and money-movement services. Instead of multiple segments of transfers, online funds transfer will broaden to embrace any type of online money movement, including interbank, intrabank, between an individual's accounts and to third parties. More importantly, online funds transfer as a category needs to become less confusing to bank customers and more service-oriented. Banks should be focused on having customers think, "Why should I go to the bank or write a check, if I can conduct my transactions online? It's easier and more convenient for me."
Banks will ultimately need to create a centralized hub for online money movement, delivering a single interface where all customers need to do is fill in the source and destination, the transaction amount, and when they wanted the money delivered. Rates would be based on express or standard service, similar to what happens today in the overnight delivery business. Today's FedEx customers enter a destination, a package size and amount, select a service type and opt to have a signature of receipt or not. They have no involvement in how FedEx gets the package to its final destination: It's all about the guaranteed delivery. So it should be for banks. Behind the scenes, banks would determine how to route and manage the risk of the transaction. Using the core DDA account, banks can offer online money movement that is streamlined and frictionless.
Banks are a natural option for this centralized delivery, with their strong customer relationships, online services and large online populations. However, if banks don't capitalize on this growing trend, others will, and the opportunity to define the service will disappear, as will additional revenue, assets and customer satisfaction. Banks cannot afford to ignore this trend, and if they get in front of it, they can shape it to meet their economic needs. In addition, banks can ensure that these services evolve with the right risk and security measures so as to avoid the fallout from fraud-related disasters that can have a chilling impact on the growth of any new service.
Today, technology exists for banks to offer all types of online money movement to customers through a simple interface. To do this right, banks will need a common technology and risk-management platform of four core components: a common business rules engine, multinetwork transaction processing, common back-office management and shared risk-management platform. The time is now to embrace a funds-transfer model that mimics the best of that in overnight delivery with the added benefit of real-time options. If implemented correctly, soon the old saying, "The check is in the mail," will be replaced by "Check your email." Then both banks and customers will be better served.
