Businesses that provide money transfers online bring us an essential service - witness how insanely popular PayPal, AlertPay, Payoneer, Xoom and any number of competing services are. These are so in demand that any new business could get in today and be certain of success. But isn't it strange that we need to look to startup Internet businesses to bring us such an important financial service? Why is it that it isn't the banks that are the front-runners in bringing us money transfers online?
Actually, the banks have been standing on the sidelines and salivating at the prospects in this business for about five years now. Over and over again they've made promises and plans to get into online person-to-person transfers from one bank to another, without actually making good on any plan. After five years of false starts though, it looks like this year might be the big one for money transfers online by the major banks. There is a certain tentative start that's been made already. A couple of mid-level banks and credit unions, like the First Hawaiian Bank and Patelco Credit Union, have gotten in. And Bank of the West is expected to start services soon.
But why really has it taken so long for the banks to tap in to a service that PayPal has forever shown to be successful and profitable? There certainly is the market and technology available; so why the holdup? Actually, it is all about good old-fashioned self-preservation. The banks are worried that if they make bank-to-bank, person-to-person transfers effortless, that you'll just move all your money to a competing bank right away. The moment there is some kind of rumor that some bank might be in distress, people can just log on and wash the bank out in about five minutes. And then of course there are legitimate concerns they have. Over the years, people haven't really proven themselves to be aware of and alert to computer fraud and fraud brought on by viruses and spyware. Right now, there isn't that much choice you have in how to get your money out to fall victim to some kind of novel fraud. You could use checks, or you could withdraw large sums of cash; there isn't much else you can do to put yourself in the poorhouse overnight. If they open up the Internet as a way to take your money out, who knows what kind of trouble you can get yourself into?
Do you remember in the year 2000 how Citibank and BankOne experimented with money transfers online? Citibank had its C2it sevice and BankOne its eMoneyMail. Those services were right away withdrawn because the banks felt that there wasn't enough risk management, and no one was really that open to the idea of Internet money transfers. People have since grown to trust the Internet a whole lot more, and we should be ready for a major banking innovation into the world of money transfers online.
Consider two new services that will be available with banks any day now - Fiserv and Cash Edge. The financial services technology provider Fiserv has agreements in place with all major banks that should let you send money from your account at any bank to an e-mail address or mobile phone number anywhere else. And Cash Edge has a similar plan in place too. Once the person you're sending money to receives the text message about it, she'll just go to the website of that service, and key in a code number she finds in the text message, to complete the transaction. There will be a limit to how much you are allowed to transfer this particular way, so the banks will really not have to worry about seeing their deposits disappear in a day.
The exciting thing is, money transfers online with your bank should be functioning in just a few months now. They actually expect 100 major banks to come on board by the end of the year.