Account to Account Transfers: The New Wave in US E-Banking

The current lack of bank account-to-bank account transfer (A2A) functionality represents a significant gap in the supply of payment instruments in the US. If banks were to implement A2A, they could generate up to US$8.5 bn in revenues.

In a new report, "Account to Account transfers: The New Wave in US E-Banking," Celent scrutinizes the state of account-to-account (A2A transfers in the US. Also called Interbank Fund Transfers, A2A transfers allow consumers to move money from their bank accounts to their accounts at other financial institutions (Me2Me) and to other individuals’ or businesses’ bank accounts (C2C, C2B). In a substantial (50 pages) new report supported by evidence from more than 30 in-depth interviews, Celent examines 1) the need to close the gap created in electronic payments by the lack of A2A; 2) the business cases for A2A; and 3) the major initiatives to implement A2A in the US.

Although very popular across Europe and Asia, A2A transfers have almost never been available to US consumers. However, new forces are pressuring financial institutions to implement A2A for casual payments, bill payments, account opening and funding, and e-commerce."It is no longer a question of whether banks will offer A2A, but a question of how they will configure the capability," comments Gwenn Bézard, the author of the report.

Among the forces pushing banks to offer A2A is the need to reduce the volume of checks and better leverage investment in online banking platforms. "Over the past few years, US banks have concentrated on bill payment applications which are primarily designed to allow consumers to pay large businesses. Meanwhile, banks have overlooked the cost savings and revenue opportunities associated with using A2A transfers for casual payments, bill payment, account funding, and e-commerce," says Mr. Bézard. The lack of A2A has driven high check volumes and limited the appeal of online banking to consumers, with the striking consequence that the number of transactions per online banking user is very low in the US. The total is about half that of Norway, a country where banks allow consumers to make A2A transfers to pay other individuals and businesses (Fig 1).

Alternative payment schemes such e-checks and Paypal are also forcing banks to consider offering A2A. These payment mechanisms direct no, or very limited, revenues to banks. While e-checks and Paypal are growing annually at 96% and 90% respectively, there has been only 43% growth for bill payments and 19% for credit cards which are typical bank revenues drivers. In this context, banks need to develop an A2A offering to protect their revenues in payments (Fig 2).

Celent expects 2003 to be a critical year for the US payment industry as ACH payment networks (NACHA with Project ACTION) and EFT networks (NYCE, Star Systems) race to support A2A transfers and enroll institutions. Over the next 2-3 years, Celent believes that the introduction of A2A could drive Paypal out of business while making banks’ electronic payments offerings more like the Fedex model, in which consumers trade off between speed of delivery and cost.