The Fed's rate-cutting strategy to counteract the credit crisis has had consequences in Net banking. The alluring five-percent-plus rates that ING Direct, Citi, Capital One and others once offered for high-yield, online savings accounts (HYSAs) have dwindled to three percent territory.

At their peak, these direct bank HYSAs propelled demand for online account-to-account transfer services as savvy savers hunted for the best rates and wanted to switch money from account to account. Now, however, account to account (A2A) transfer growth has its own momentum even as HYSA growth slows considerably.

Leading the way in the account-to-account category are big-bank oriented CashEdge, and uMonitor which primarily serves smaller institutions and credit unions with its uTransfer platform. More than 250 institutions are on CashEdge's FundNow account-to-account module.

A spokesman for CashEdge, a cornerstone provider of A2A and online account opening services to major banks such as Citigroup and Bank of America, predicts a 50-to-100 percent surge in funds transfer volume in 2008 over its record-breaking year in 2007; last year CashEdge reported a 300 percent increase totaling more than $38 billion in consumer funds traversing between owner-linked accounts.

The trend indicates that customers are using A2A for more than lobbing funds into an ING Direct Orange account, and that linking inter-bank accounts is a feature that many are coming to expect. All indications are that A2A has gone "mainstream" as customers feel more comfortable transferring funds, particularly in larger amounts, according to TowerGroup analyst George Tubin.

"With the credit crunch...more consumers are really looking at their banking relationships making sure they're getting enough out of it," says Jennifer Roth, senior analyst at TowerGroup. "There may be more potential for movements, and managing finances more closely."

Banks have good reason to provide A2A capabilities beyond meeting customer service expectations. According to TowerGroup research, switching from a paper-based funding process to an entirely online funding process increases the completion rate of new applications by 60 percent. The hang-up with paper-based funding is as simple as customers not mailing back the forms — a weak link in the process that an online process eliminates.

Jeremy Sokolic, vp of marketing for CashEdge, estimates that up to seven million consumers use account-to-account services to move funds between their inter-bank accounts. "It's really growing more than twice as fast as billpay," historically, says Sokolic. "We see month-over-month growth of 10 percent in transaction volume, and registered users growing at 200 percent [CAGR] over the last couple of years."

While the A2A spark may have been the HYSAs, Sokolic says it's the growing penetration into online banking relationships where account-to-account is making its best inroads. "At the end of 2007, that penetration was about 15 percent," says Sokolic. "There's still significant room for growth, at least organically."

Also driving transactions are differing "transfer routes," expanding the use-cases for A2A to known third parties such as friends or family members, or within small businesses to send funds to employees or vendors. "As these kind of account-to-account transfers get greater acceptance, and we start to have the infrastructure in place to open up to different kinds of transfer routes—we expect transaction frequency to increase."

That may sound a bit like peer-to-peer funding — i.e., Obopay, Virgin Money or PayPal — but Sokolic differentiates A2A from P2P as not requiring pre-registration or prepaid deposit accounts at the agent acting in the funds' chain of custody.

Sokolic thinks there could be 25 million households conducting account-to-account funding within five years, growing in tandem with online banking adoption. Online banking customers in particular may be more active; these customer hold up to 50 percent more accounts and generate 20-to-40 percent more profit than offline customers, according to TowerGroup.

Payments and account aggregation vendor Yodlee, which has A2A funding features within a new-account suite it sells alongside partner firm Andera, says there's a groundswell of account-to-account activity for consumers interspersing funds between DDAs and their brokerage or 401(k) accounts.

Not surprisingly, banks want in on that activity, whether in an A2A platform or in maturing peer-to-peer models that may grow from mobile phone payments. "I think there are a bunch of people in the banking world who see PayPal and are irritated to death," says Eric Connors, vp of product development at Yodlee. "All that kind of business not moving through them." (c) 2008 Bank Technology News and SourceMedia, Inc. All Rights Reserved.

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