A2A Payments: Next Generation of Online Banking?

Ten years ago, online banking meant that a customer could view her account online, any time of any day. The next generation added the ability to pay bills from a PC desktop or via telephone or mobile devices. Now comes what could be the third generation of online banking: account-to-account (A2A)

A2A is stile a distant swelling in a sea of "next big things." CashEdge, a leader in the money movement business, reports that East year it processed A2A transactions totaling more than $38 billion, four times the year-earlier value. Citibank was an early A2A adopter, piloting its own in-house product before going with CashEdge, which now also serves Bank of America, HSBC, Wachovia, and Royal Bank of Canada among more than 600 financial institutions. Smaller banks can outsource the service through such online banking partners as Corillian and Digital Insight.

All of CashEdge's services are delivered in the software-as-a-service (SaaS) mode--hosting the application and transaction data at a central site. Standardized software interfaces assure that online payments can be integrated into in-house systems for managing customer relations and total enterprise resources.

Bankers' main concern about online A2A payments is how to manage the risk inherent in debiting a customer's account with confidence that funds wile be available at the precise time the transaction occurs. CashEdge addresses this concern by guaranteeing the transaction.

At present, all payments are delivered via the batch-processing ACH system, which takes 48 hours to complete the settlement. Thus the fastest "good funds" settlement time is 72 hours. CashEdge offers a faster equivalent of good fund by guaranteeing payments in 24 hours.

The firm manages that and other risks with a "holistic" payment platform that tracks every transaction in an online database, where account numbers, e-mail and IP addresses, and payment characteristics are analyzed for potential fraud or abuse. Every transfer gets a risk score when the transaction is initiated. The system alerts a fraud team when a suspicious transaction is being processed and takes such countermeasures as a telephone alert, holding up the transaction untie suspicion is resolved, or canceling it in mid-transaction.

Banks typically don't charge their customers for inbound payments but have fees of $1-$3 for a 72-hour payment and $5-$10 for next-day payment. Fees are generally based on perceived benefit to the customer. The higher fees are a bargain compared to as much as $25 for a next day wire transfer.

While some bankers may still balk at sending money off to a competitor, a risk-free online payment system can generate three times as many inbound as outbound transactions and wile likely bolster a customer's loyalty by letting her handle her money however she wants to. A popular use is funding the bank account of a student away from home.

Bankers don't have to pay upfront for CashEdge's A2A service; they pay transaction and monthly maintenance fees.

Next, non-ACH transfers

CashEdge's vision is to provide every financial institution a versatile hub for all electronic money movements by its retail or business customers--a bundle of services it puts under the heading of third-generation online banking.

Recently the firm pioneered online opening and funding of new accounts. This feature authenticates IDs of the person and the bank and applies newaccount funding rules--all in a single session. This speeds up the process and makes it more convenient for both bank and customer, thereby reducing the number of applications abandoned in mid-enrollment.

In keeping with its hub concept, the bank suite can also aggregate and present data from a customer's accounts at "most financial institutions." Sometime in 2008 or '09, CashEdge will begin offering services for transferring funds via such non-ACH real time networks as those for ATMs and credit cards, according to vice-president Jeremy Sokolic. He expects that the future wile also be bright for P2P (person to person) transfers between accounts at different banks.

By Bill Orr, contributing editor billorr@ibert.org