RBC is giving up the revenue it gets from its $1-per-transfer service by offering free Interac transfers from all personal checking accounts, in effect betting that the relationship it builds with customers will be more valuable than its fee income.
The decision is not without consequences. The bank reports RBC users sent more than $22 billion in payments via its person-to-person services, and more than 50% of the bank's current electronic transfers are sent using a mobile device—up from 20% two years ago.
"People are using P-to-P at an ever increasing rate and overwhelmingly prefer real time payments," said Doug Collins, vice president of payment and banking services at RBC. "To not offer it would be a disadvantage."
Interac e-transfer is a national alternative payment system that enables mobile banking users to send funds to an email address or a phone number, providing Canadian banks with a seamless account to account transfer service. RBC is positioning the free transfer service as a way to bolster relationships with consumers, and eventually expand those relationships, Collins said.
"It's not a loss leader but part of how we can add value to customers, and if we can sell products and services where it fits we will," Collins said.
This aggressive push of mobile P-to-P payments fits with the bank's longstanding digital strategy. RBC has been a vigorous supporter of mobile financial services, launching its own mobile wallet two years ago and becoming role model for other banks that are considering taking more control over mobile financial services.
Interac e-transfer covers most of the Canadian banking market, and RBC is the first bank in the country to waive fees.
"It strikes me as odd that this is the only industry that feels compelled to offer consumers free services even when that service has a very real cost associated with delivering that service," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group. "Banks created the mindset that financial services should be free with checks, which was followed quickly by free checking accounts. Now it's free transfers."
"While a free service can prove profitable in the short term by winning new customers, it can't be profitable in the long term since competitors will be forced to offer similar or better deals," Sloane said. "P-to-P volume will grow significantly over the next 10 years, but I am hard pressed to why this implies it should be a free service."
Collins compares the P-to-P offering to what the U.S. has done with Early Warning's clearXchange. The bank-run system was designed for P-to-P but quickly began developing other use cases.
"Many countries would like to have the P-to-P system that we have in Canada. All of the financial institutions participate and it's a fairly ubiquitous service," Collins said. "They don't have that in the U.S."