A growing number of smaller financial institutions are offering money transfer services that let customers use the Internet to move funds either to their own accounts at other institutions or to accounts that belong to other people, no matter what bank they use.
These "A-to-A" (for "account-to-account") and "P-to-P" (person-to-person) features are not meant to compete with PayPal, the granddaddy of P-to-P services, but to attract and retain customers who might otherwise be lured to bigger banks. Though these services are not yet a staple at big banks - Citigroup Inc. offers them but many large competitors do not - they are rapidly becoming popular at smaller institutions, which describe them primarily as relationship products rather than money-makers.
Those banks say that the A-to-A feature is by far the more popular one. People typically use it to fund brokerage accounts or move money from a distant institution to a local one.
Under both services the bank transfers the money via the automated clearing house, either to another account the customer holds (at the same institution or another one), or to another person. As with the PayPal system run by eBay Inc., the recipient need only have an e-mail address and a bank account.
These bankers say that money transfers initiated through a primary depository institution can be cheaper, faster, and easier for customers than options such as a PayPal transaction, an online bill payment, or a money order.
"I believe that the majority of customers do not have all their eggs in one basket - one particular institution," said Rose LaCara, the vice president of deposit operations at Brookline Bank, a subsidiary of Brookline Bancorp of Brookline, Mass. "They spread their funds between accounts. And so occasionally they have to move their money around, and this [service] gives them an opportunity to do that."
Brookline Bank had run an Internet-only subsidiary called LighthouseBank.com that had offered A-to-A payments. When it closed that venture in 2001 it transferred customers of the Web bank to Brookline Bank, and some of them complained that Brookline lacked the A-to-A feature.
It was not until September 2003 that they got it back, Ms. LaCara said. That was when Brookline Bank came out with both A-to-A and a P-to-P service, which came free with the A-to-A capabilities the bank bought. Brookline Bank did this through its online banking software vendor, Digital Insight Corp., which resells the person-to-person and account-to-account technology developed by CashEdge Inc.
Neil Platt, CashEdge's vice president of sales and business development, said the New York firm has offered both technologies for a number of years but that the market has only begun to heat up in the last few months.
"Two years ago no one was buying any new technology for any reason," Mr. Platt said. Now, as the economy improves, financial institutions have been "loosening their purse strings a little bit." CashEdge scored a big win in 2003 when Citigroup brought its A-to-A technology to market; in November it landed a partnership with Corillian Corp., an online banking software vendor that competes with Digital Insight.
Michal Geller, a senior product manager at Digital Insight, of Calabasas, Calif., said that many of his firm's "didn't have the budget for the product because they only [first] saw it in 2003." But he said many had "signaled" that they were budgeting for the service for 2004.
Charter One Financial Corp. of Cleveland, a $44 billion-asset bank holding company, said in late 2003 that it would introduce the CashEdge/Corillian online money movement technology in 2004; it is another of the larger banks that have shown a commitment to A-to-A and P-to-P. Mr. Platt of CashEdge predicted that within two years most large banks and myriad smaller ones will offer them.
Michael Dobbins, Charter One Bank's senior vice president of direct banking, said that it will roll out its A-to-A service in late March or early April, initially at no charge, and begin offering a P-to-P service two months later. "We don't want to overload the consumer with all that technology," he said.
David Petro, the executive vice president of ICBA Bankcard, a subsidiary of the Independent Community Bankers of America in Washington, said he has seen an "increase in activity and interest over the last four to six months" in these services, mainly because of the anticipated boost in customer loyalty. If a bank "can become the one that originates these transactions, that means the customer feels that's their primary bank account," he said.
Ent Federal Credit Union of Colorado Springs charges customers of its P-to-P service 30 cents per e-mail payment. "Premier" customers, who must maintain $15,000 in deposits or $30,000 in loans, get it free.
James Moore, a spokesman for the credit union, said the year-and-a-half-old service appeals to membership. "We have a significant number of active-duty and retired military members who come from an increasingly technologically focused environment," he said. "Plus, we have Intel, MCI, and assorted software and hardware companies represented in our area."
Ent Federal Credit Union does not offer account-to-account.
"We made this decision out of concern for our members' ability to recover their funds if they make a key-entry error when entering the destination account information," Mr. Moore said. "We were also concerned about the fact that account-to-account transfers disclose more confidential account information to the user than does the person-to-person functionality. During this period of heightened concern about identity theft and related issues, we felt there was not sufficient demand among our members for the account-to-account service."
Other banks say they have had good experiences offering both A-to-A and P-to-P. Marge McNaught, the senior vice president of lending and technology for Premier America Credit Union in Chatsworth, Calif., said that convenience, efficiency, and the chance to deepen relationships with members convinced her credit union to add the services, which it did in September. Of the 1,100 members who have signed up, more of them use the A-to-A service than P-to-P.
Digital Insight has found that this experience is typical: Customers use account-to-account more than person-to-person, and banks prefer A-to-A because it commands higher fees. The average P-to-P transaction is one-fifth the size of the average A-to-A transfer, the company found.
"You're definitely not making the money off P-to-P," Digital Insight's Mr. Geller said.
Gwenn Bezard, an senior analyst at Celent Communications, a technology and financial services consulting and research firm in Boston, said these services in no way compete with eBay's PayPal, because they serve different demographics. While the technology is similar - both PayPal and bank-run P-to-P services use e-mail to alert people that funds are being transferred - a PayPal transaction generally moves from a consumer to a merchant, he said.
PayPal has not gotten into the person-to-person space because the company "is making a lot of money charging relatively high fees to the merchants," Mr. Bezard said. "The pricing of a P-to-P transaction has to be lower with two consumers."
And though he said that the volume for person-to-person remains low, he also said the potential is "huge," especially as electronic transactions continue to replace those made by paper check.
