If I hadn’t seen it with my own eyes, I wouldn’t have believed it. At BAI’s mid-November tech fest in New Orleans, Citibank’s Catherine Palmieri took the stage and challenged the audience to get moving with interbank, also known as account-to-account transfers (A2A). She said that 75% of its online transfers were inbound and that Citi was taking money away from the other big banks and brokerages, many of whom were in the room. Although they had not marketed the program yet, Palmieri reported “thousands” of users (she declined to be more specific).

I’m not sure what motivated Citi to hype its funds transfer prowess, except perhaps as a favor for partner CashEdge,¹ who’s CEO Sanjeev Dheer, co-presented with Palmieri. Later Dheer assured me that Citigroup has no financial stake in the privately-funded company. In fact, two Citi competitors, Royal Bank and CIBC, made equity investments in CashEdge earlier this year.

As far as I’m concerned, when you make $4.8 billion dollars in the prior quarter, as Citi did in Q3, you are entitled to make any boast you want. Certainly, the A2A program is strategically the right thing to do. But we wouldn’t put much stock in the 70% to 75% inbound percentage that Citibank and other CashEdge clients have experienced.² Since Citi has no fee for
standard (3-day ACH) inbound transfers, but charges $3 for standard outbound transfers, it’s not surprising that there is more inbound activity.³

If that pricing philosophy continues, the percentage of inbound to outbound transfers through web-based A2A will likely go higher. If Bank A and B both offer free inbound ACH transfers and charge for outbound, users will gravitate to the source of free transfers. For example, they will use A when transferring from B into A. But will use B when transferring from A into B. This doesn’t bode well for significant long-term incremental fee income, unless you can differentiate your service from others through ease-of-use, pricing, or trust (see Citibank icon).

¹Or perhaps to take the sting off the recently shuttered www.C2it.com  person-to-person transfer program, though Palmieri declined to comment on C2it.

²CashEdge says that across its entire client base, inbound volume is 70% of the total. But like Citibank, many financial institutions providing free in-bound transfers and charging for outgoing.

³Citi also offers a next-day transfer option priced at $3 for inbound and $10 for outbound, see Table 1, right.

Table 1

Citibank Interbank (A2A) Price Schedule

Source: Citibank, 12/8/03

Note: Cut-off times are: Standard: 1 am the following business day;
Next Day: 3 pm; therefore, between 3 pm and 1 am, both choices have similar delivery times, you might gain a day with Next Day.

1) Citibank plans to raise the limits as they get a better handle on
    overall risk and individual customer behavior

2) Not to exceed a total of $4,000 in daily volume across both services

3) Not to exceed a total of $10,000 in monthly volume across both services

Long-term, online interbank transferring is a zero-sum game, every transfer is a deposit gain for one financial institution and a loss for another. However, short-term there are real opportunities to gain deposit share through convenient Web-based transfers. ING Direct http://www.ingdirect.com/  could be a poster child for the service. The only way you can remove funds, and the easiest way to deposit money, is via interbank funds transfer. The lack of ATM or check access hasn’t deterred U.S. consumers from opening more than one million accounts with total deposits of $14.3 billion (as of
Sep. 30, 2003) at the Internet-only bank.             

At ING Direct (USA), interbank and intrabank transfers are handled from the same “Transfer Money” tab.