Simple money-movement between accounts at different financial institutions has been an elusive goal for consumers. Their alternatives have been primarily limited to checks (a slow process) or expensive wire transfers. ACH electronic transfers, although a common procedure for corporate accounts, are not readily available for consumer use and are not widely promoted for this application.

Banks and their respective card associations are the dominant and most recognized brands for guaranteed, rapid money movement worldwide. Banks need to recognize that they must anticipate and capitalize on emerging technologies and service offerings to extend this dominant position to new applications for money movement in new channels such as the Internet.

Financial account aggregation and Me2Me funds transfer is potentially one such offering.  Today, account aggregation enables customers to access a consolidated view of their online financial accounts at different financial institutions – as well as other content such as email accounts and reward program balances.  Although it first appeared just three years ago, account aggregation has captured the attention of investors and their service providers, including Internet banking solutions providers, traditional financial institutions as well as non-financial companies.

There is strong evidence to suggest that account aggregation promises to alter the funds transfer playing field. Driven by user demand, aggregation is swiftly moving beyond current view-only functionality and has set the stage for promoting interbank money movement. A recent Dove Consulting survey of online households reported that 89% said it was very or somewhat important for an aggregator to offer this service.

As consumers come to expect their financial institution to support interbank Me2Me funds transfer through the Internet, they will also demand this functionality at physical locations as well, such as ATMs, agent networks, banks, nonbanks and the like. Another recent study, sponsored by NYCE, found that almost 40% of consumers are interested in performing interbank funds transfers at ATMs.

Simple money-movement between a household’s asset accounts will lead to significant new revenue opportunities that some sources estimate at more than $2 billion annually. Banks are well positioned to ride the wave of interbank Me2Me funds transfers because they are currently the only player possessing the infrastructure to fill the wide-open gap within existing money movement options (see above chart).

Boston-to-New York Document Delivery Options

Source: FedEx, 4/22/02    *Dropped off and shipped to business address, does not include 1% fuel surcharge    **Not guaranteed

Our research indicates that account aggregation is going to highlight for consumers and small businesses the “timing” and “price” gap that exists in the market today between paper checks, and wire transfers. The FedEx business proposition, which first came to market in the mid-1970s, was designed to fill a similar gap. Today their service offering has grown further in that space, with a number of different price/service bundles (see table above).

Banks are uniquely positioned to fill this pricing and settlement gap and seize the new $2+ billion market opportunity from providing interbank “Me2Me” funds-transfer capabilities. This service has the potential not only to significantly leverage their payment networks, but also to carry them into new markets by being the “transfer agent of choice” for account aggregation services and ATM networks. 

However, there is a very narrow window of opportunity to successfully position a bank’s product and service suite to capitalize on this opportunity.  In addition to an expeditious marketing and sales effort, care will need to be taken with the final processing approach and promotional packaging selected. These factors will dramatically impact the profit equation, settlement risk, and the ultimate motivation for consumers to conduct Me2Me funds transfer through Internet interfaces, agents, remarketers and other nodes in this new and evolving network.

Yahoo’s year-old interbank transfer service, powered by CashEdge, continues to be one of the most sophisticated available online. It now offers two payment options: “Standard” for transferring up to $2,000 per week is free, while “Jumbo” for up to $10,000, is priced at $5.95. Both move through the ACH system with a 2 to 3 day time lag.

Understanding these factors and their respective benefits is a critical aspect of adding incremental and profitable transaction volume to the Retail and Wholesale banking service suite. Done correctly, banks will quickly dominate this segment of money transfer, and begin repositioning their online debit brands in an umbrella fashion in a way that is equally as credible with upscale products and services as it is with their traditional paper-based payment products.           

Richard K. Crone is VP at Boston-based strategy firm Dove Consulting, where he helps clients create market-driven growth strategies. Contact him in his San Carlos, CA office at (650) 592-4006 or rcrone@consultdove.com.