Transferring money gets easier

By Felix Salmon
December 1, 2010

It’s far too difficult to send money to your friends, family, or acquaintances.

At the moment, in the U.S., you basically have three options. You can try to do it physically, in person, with cash; that’s cumbersome, and often the reason you want to send them money is precisely because they’re paying cash for something and you want to pay them back. You can write them a physical check, which is even more cumbersome, and requires you to either carry your checkbook around or else start sending the payment in the mail. Or you can send them money through PayPal, which requires that they set up a PayPal account, and which often leaves them with less money than you sent, if you attached your PayPal account to your credit card.

If you live in Europe, or Canada, or just about anywhere else in the world, however, it’s easy—all they need to do is give you their account details, and you can transfer money directly from your account to theirs, for free. The lack of this basic banking functionality essentially explains why PayPal was created in the first place—by rights, if the U.S. banking system were remotely efficient or sensible, PayPal would never have existed.

Finally, however, that’s changing—and not just at forward-thinking credit unions and community banks. Citibank is now offering Popmoney, a service from CashEdge which allows Citi customers—and customers of 164 other banks—to send money easily to anyone in the U.S. with a bank account. If you send it straight to their account, the money simply appears there, just as it does in Europe. Alternatively, you can send it to their email address or mobile phone number, as you would with PayPal; in that case, they need to provide their bank account details to Popmoney before they can get the cash.

Citi has another service, too, called Inter Institution Transfers, which allows you to transfer money from your bank accounts at other banks straight into your Citi account.

These are basic wire transfers, but they don’t come with fees of $25 or more for the privilege: instead, they’re free. (Although, slightly ominously, Citi says that Popmoney pricing “is subject to change.”)

Tom Noyes had a good blog post about this back in October—I’m late to this story—saying that with this move, “Citi is now the leader in mobile payments.” But in fact he understated the extent of Popmoney: you can send money to anybody with a bank account, not just to anybody with a bank account at a Popmoney-enrolled bank.

For reasons I don’t understand, the big three retail banks are not following Citi down this path; instead, they’re laboriously trying to build their own systems to replicate Popmoney.

It’s all a bit depressing that these kind of systems have to be built at all, and aren’t just baked in to the national payments operating system, as it were. I’m sure that while Citi is offering Popmoney free to its customers, it’s still paying CashEdge some serious money for use of their technology.

The only thing I wonder about is whether Americans will ever get into the habit of happily giving out their bank account details to their friends and acquaintances. Most Americans, in my experience, think there’s a huge security risk to doing that. I think they’re probably wrong, but I’m not sure: is there a good overview, anywhere, of how safe or risky it is to give out such information?

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