Consumers wont be the only ones with access to CashEdge's ACH payment services any longer. Bank of the West will be the first bank to offer its small-business customers an ACH payment service that could make costly wire transfers unnecessary as part of a new online banking platform for small business.
At many financial companies, small-business customers fall into a gray area between the free online banking sites for consumers and the cash management services for big corporations that generate significant fee revenue.
Bank of the West has some small-business customers on a version of its consumer system, and it says some of them will be willing to pay fees to send transfers through the new service. "Payments is really one of the top two or three things that we hear that these folks really need," said Matt Macomber, Bank of the West's executive vice president and multichannel banking manager.
CashEdge's automated clearing house payment service "will certainly be core to" its small-business online system. ACH payments may even edge out wire transfers, he said. In a poll the bank conducted this summer, demand for "ACH scored higher than wires for this particular segment," Macomber said.
In fact, wires aren't even on the initial feature list for Bank of the West's small business account, and if the automated clearing house service takes off, they may never be.
Bank of the West, a unit of BNP Paribas SA's BancWest Corp., offers consumers ACH payments over CashEdge's Popmoney, which lets people send each other money, routed to their e-mail address or phone number. Bank of the West has offered consumers this service since June; until now it did not offer it to businesses.
Gwenn Bezard, a research director at Aite Group LLC of Boston, said that CashEdge's system has a large audience seeking a simple alternative to checks and cash. "You have a massive opportunity out there to bring small-business payments to the electronic world," he said. "So much of the check volume there is being driven by small businesses."
The business payment market is "massively underpenetrated" by electronic payments, he said. So is the market for person-to-person payments, Popmoney's original focus, but Bezard said the opportunity there is much smaller. "You'll probably do well to focus on business payments," he said. "Even though P-to-P is cute and hip. At the end of the day you probably have a lot more money to be made on the business side."
Even today, CashEdge's consumer Popmoney service is used more for business payments than the person-to-person payments for which the system was designed. Consumers favor it for paying landlords and piano teachers, for example - the sorts of business payments that are still paid by check, while big billers won consumers over to online bill pay.
However, that trend was driven by consumers - merchants did not have an elegant way to direct consumers to bank sites to pay them by ACH; banks' online bill pay sites might still settle the payment as a check. Macomber said that adding a business version of Popmoney gives merchants the ability to guide consumer behavior, or even to use the system to pay other merchants.
A later version of the small-business Popmoney system will allow businesses to create invoices that can be paid through Popmoney. This is expected to go live in January and Bank of the West plans to introduce it in the first half of 2011.
Bank of the West's business customers will not have to start fresh with a new online banking service; CashEdge's payment system, and any other features, will be presented as a tab within its existing online banking site. In the initial rollout of the upcoming small-business banking service, Bank of the West also plans to allow businesses to delegate different levels of access. This would allow a business owner to let an employee track which invoices have been paid without giving that same employee full control of the business' funds, Macomber said. This feature would come from Fiserv Inc.
The average payment over Popmoney today is $282, though this is artificially low because some CashEdge clients cap P-to-P payments at $500. At one client that does not impose such a cap, BECU, the average is $600. CashEdge expects much higher volume with business payments; the average consumer pays nine bills a month, businesses make 20 to 50 payments a month.
- Daniel Wolfe is a reporter for American Banker.