InformationWeek

February 12, 2001

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Real-Time Bank-To-Bank Transactions

NYCE promises the service within a year; plans person-to-person payments first

By Cheryl Rosen (crosen@cmp.com)

More on E-payments:

McDonald's Tests Wireless Payment Technology (1/8/01)

TechWeb Finance: E-Currencies Are Going Offline (12/13/00)

f all the possible applications for real-time transactions, few are more intriguing than zapping money from one person's bank account to another's. It's a service the banking industry is eyeing closely and promising to deliver in less than a year.

NYCE Corp., an automated teller machine network, recently demonstrated a real-time, person-to-person money-transfer capability, shifting $1,000 from Citibank to People's Bank in seconds. The transfer system is in pilot now and will be available to all 2,400 network member banks by June, says Denise Lima, NYCE's product manager for emerging network payments.

NYCE plans to require all banks in its network to accept real-time transfers to consumer accounts in about a year, although the company won't mandate that banks let their customers initiate the transfers, Lima says. NYCE's first target market will be person-to-person payments, such as parents sending money to college students or eBay customers paying for auction purchases. Ultimately, NYCE hopes customers use the technology for bill payment and business-to-business transfers.

Once available, customers will go to an ATM, NYCE's Web site, or a bank Web site, enter a personal identification number, and initiate a payment. If the funds are available, the money is transferred immediately.

The key is to convince enough member banks to use the service. "The more banks that are connected, the more valuable the service. We won't want to offer it if you can only transfer money to six banks," says Rodman Reef, president and CEO of CitiGroup's Citishare retail electronic funds business.

The requirement that banks accept transfers will push the banks to step up to the plate; the issue then will be getting consumers to use it, says Gartner senior analyst Avivah Litan. The NYCE mandate is a good way to force banks to change their business model, says Jupiter Research analyst James Van Dyke. "Any time you can be heavy-handed, you ought to be," he says.

About half of all payments in the United States are made with cash, compared with just 20% on credit cards, Litan says. That means it's important for alternative payment systems to work just like cash to succeed. Real-time money transfers via the Web or an ATM could be well-received by consumers.

Reef says he sees an application in real-time brokerage transactions. NYCE has lots of work to do writing the operating rules and defining the interfaces, he adds. "But are we very interested? You bet."