Banks have gotten over the fear that offering online account transfers will put them at risk for deposit flight.
Not only do many online banking sites let customers move money in and out of accounts at other financial institutions, more are also giving them the ability to do it on an expedited basis, typically for a fee.
The trend is a departure from a few years ago, when most banks worried that giving customers transfer abilities would make it easier for them to move all their funds to a competing bank.
"That's become part of the fabric of online banking," said Chris Musto, general manager of the competitive research and financial services group at Keynote Systems Inc., a San Mateo, Calif., company that measures mobile and online services.
In a scorecard to be published Tuesday ranking 23 banks' online performance, Keynote said that 19 of the financial institutions now offer customers the ability to move funds in and out of accounts at other banks, a 36% increase from a year ago.
Of the 19 banks offering the service, six offer an expedited or next-day version. Next-day capability is one way that banks are trying to tweak online services that many initially rolled out to show that they were offering it, Musto said.
In addition, many banks are letting customers nickname their external accounts they have set up so a customer can more easily select the one they want to transact with.
"Now it's mature enough … that banks are focused on how can they make it better," Musto said.
Also, many banks see revenue opportunity in offering expedited transfer services, an increasingly important consideration in light of recent regulations that makes it more difficult for financial institutions to charge certain fees.
"Just in general any time you can offer the expedited service, you can assess a fee," said Nicole Sturgill, a research director with TowerGroup. "As every bank is looking to increase their revenue or in this case fill the revenue hole they have from overdraft fee regulation, they are looking at what are those fee-based services that really do provide convenience to the customer."
"I would put expedited account-to-account transfer services in the same bucket as expedited online bill payment," Sturgill added.
The banks that Keynote tracks are taking varying approaches to charging fees for their account transfer services.
Wells Fargo began offering the ability to transfer to external accounts and an expedited service in 2009. It charges $3 for outbound transfers with three-day delivery and $10 for next-business-day delivery, a Wells spokeswoman said by e-mail.
"Through internal research, we know the more engaged customers are in our online services, the more satisfied they are," she said.
Citigroup Inc., by contrast, does not charge for either service, Musto said. (Citigroup did not respond by deadline to questions about pricing.)
There are two competing pressures that banks are dealing with when deciding whether to charge for online banking services, Musto said.
"Things in online banking tend to go free," he said. Online bill pay is the "classic example," he said.
Some banks initially charged a fee to use the service, but they eventually dropped it.
Banks push online bill pay because research shows that consumers that use the service are more apt to stay with the bank, primarily because of the difficulty of carrying over payee information if they switched banks.
It is doubtful that account transfers and expedited services will do as much for customer retention as online bill pay, Musto said.
Sturgill said, "I think bill payment probably still is a better measure of customer loyalty or a better step toward customer loyalty than account-to-account transfers."
Transfers do hold appeal, she said, so "if the customer really wants that and the bank doesn't offer it … then the side — that bank — that has account-to-account transfers is probably going to be a preferred provider for that customer."
BB&T Corp., which is one of the 19 banks Keynote tracks that offer account-to-account transfers, began offering transfers about a year ago, a bank spokeswoman said by e-mail. It also offers an expedited transfer service. "Our online banking clients are among our most loyal, and when we provide services that make banking with us easier and more convenient it has a positive impact on client retention," the spokeswoman said.
Banks must also contend with the search for new fees, Musto said.
It is too early to tell whether banks might be influenced to drop fees for expedited account transfers if other banks offer it for free, Musto added.
Ron Shevlin, a senior analyst with Aite Group LLC in Boston, said he doubts there is enough demand for expedited account transfers to charge for it. "This expedited thing is more pertinent to a bill-pay environment, where you want to be sure … the money is credited into the payee's account immediately to avoid any late fees or a shutdown of service," he said.
Aite research shows that a good deal of account-to-account transfer activity is payment to a spouse or other relative for money owed, making an expedited service less necessary, Shevlin said. "Most of this stuff is not so critical from a time perspective where the expedited component of it is really going to drive any value or drive any need from a consumer perspective," he said.
The other three banks that Keynote tracks that offer expedited account transfers are Bank of America, JPMorgan Chase & Co. and Fifth Third Bancorp.
Adding new features to existing account-transfer services is reflective of a broader trend of banks giving customers more capabilities in the online channel instead of rolling out a service to show that they offer what their competitors have, Musto said.
He cited new alert functions that banks have been adding as a similar example.
