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?

Comments
20 comments so far

My experience is that wiring money between different banks is incredibly expensive in Canada. I use money transfers but only with members of my bank. The difference is that Canada only has a handful of banks so you’re more likely to share a banking institution with your counterpart.

It’s nowhere near what it is in Europe, where money wiring is one of the most common banking operations.

Posted by lemarin | Report as abusive

Felix – did you notice that Citi’s inter-institution transfers let you transfer $100k INTO your account, but only $2k OUT of your account?

Posted by KidDynamite | Report as abusive

At Bank of America (I know, evil) there are other options. If the other party has a Bank of America account, you can transfer money directly to them, instantly and free. If the other party is not a Bank of America customer, you can simply use the free online bill pay feature and have the bank mail them a check. It doesn’t require carrying your checkbook around, or even writing a check. While I wish there were a better direct system, the fact that most ATMs take deposits these days makes the online bill pay feature rather convenient. For all its faults, Bank of America does have a large network of convenient ATMs.

Posted by MitchW | Report as abusive

Felix, what if there were to numbers for each account. One to share which let people put money into (but not withdraw) and another one for everything else?

Posted by harshalpatel | Report as abusive

INGDirect has had this all of this functionality for quite a while now with their Person-2-Person Payment system and inter-institution transfers.

Posted by donhalljobs | Report as abusive

The last time I “transfered” money to my sister, I used my bank’s online bill payer. Very convenient and free, at least for me. Of course, my sister had to wait for the physical check to be mailed from my bank and then she had to carry it over to her bank to deposit it.

I’ve been living in London for the past year, and it was shocking to find out how easy it was to transfer money. I don’t know how to fill out a check in this country (and they’re surprisingly different than American checks), and that’s fine with me. It’ll be tough going back to the American banks.

As far as security, it’s as secure as the banks want it to be. As long as the banks do a good job with authenticating you prior to any transfer, it shouldn’t be any less secure than any other transfer. After all, when I write a check, my account information is right on that check.

Posted by aTree | Report as abusive

Paypal also exists for an important additional reason that is largely unrelated to that cited by Felix — the Fed payments and check clearance system is rigged entirely and inefficiently in favor of the banks rather than customers (there’s a shock) with regard risk of loss from fraudulent checks, transfers or bounced checks. Thanks to bank lobbied changes to the UCC in 1994, there is no true finality of payment anymore, even after funds have cleared the normal settlement process. For example, try getting your bank to tell you (the payee) that the check you received for the $3000 Elvis doll you sold on eBay has been (1) presented and accepted by the payor bank; (2) that therefore the funds deposited to your account are now finally yours, and not subject to reversal. This was the law before 1994. At that time, a legal “fiction” existed that banks had an absolute contractual liability to honor “true” signatures only. If there was a problem, after settlement, it was a fight between the banks, not with the customer. The 1994 law makes liability a case-by-case determination. While justified as an attempt to place liability on the party most able to monitor and prevent fraud, it is instead an open invitation to endless litigation. That means banks will push and stonewall customers forever, purely within their own discretion. Sure, you can sue the bank, but small depositors can’t afford that. Thus, the need for Paypal, which provides well-defined, non open-ended standards for payment finality and related buyer and seller protections. Paypal STILL should not exist, but not only for the quite valid reason Felix cites.

Posted by maynardGkeynes | Report as abusive

Giving out your bank account number is much more dangerous in the US than in many other countries because of how easy the ACH direct debit system is. On many websites (such as Amazon) and bill paying services you can pay stuff by simply entering your name, ABA number and account number. It’s a little like giving out your credit card number.

When I lived in Denmark I transferred even small amounts of money all the time. There is a direct debit system, but it cannot do instant direct debits, so online shopping usually requires a credit or debit card, and you always get a monthly statement in advance so you can stop any debits you didn’t approve.

Posted by guanix | Report as abusive

Felix, ING Direct has had something like this for a long time now and I’ve used it a few times. They call it “Person2Person Payment”. You need both an email address and bank information for a person but can transfer money electronically to any bank account. The email is apparently just for the recipient to confirm, you could in practice use an email address of your own and confirm it yourself. This service has also been free.

Posted by bmozaffari | Report as abusive

Check out Chase QuickPay. It’s like Paypal — works just with an e-mail address — but is free for Chase customers, for both incoming and outgoing transfers. I have used it to exchange money with friends. However I have yet to find a client who uses that option to send me a payment, preferring the overpriced cash transfer system (costs me $15 per transaction).

Posted by Setty | Report as abusive

I can’t believe how primitive the US banking system is. How embarrassing for all you Americans.

Posted by Mike.Gayner | Report as abusive

OK to expand on my point above – LOL @ how ridiculous some of the comments here are. So if you want to transfer moeny between accounts in USA the bank actually prints a physical cheque and sends to to the counterpary? Seriously, what year is this, 1991? For at least a decade here in New Zealand we’ve had the ability to transfer money online or via phone banking to any other account in NZ instantly, with no fees, totally electronically.

Seriously America, if your banks spent less time bankrupting themselves and more time serving their customers you wouldn’t look so primitive.

Posted by Mike.Gayner | Report as abusive

This is one of those pieces of information that come up every so often that are almost impossible to believe. This ability for on-line transfers is so ingrained here in Australia that people get hassled if they don’t use it – they’re just slowing down the system. Almost all my consulting fees I earn get directly put into my account by my clients.

Posted by FrankAshe | Report as abusive

Another poster claims that PayPal provides: “well-defined, non open-ended standards for payment finality and related buyer and seller protections”. I call bullshit.

A year ago I sold a computer on eBay, which essentially forces sellers to accept PayPal. My buyer paid by PayPal and I shipped the computer. A week or two later I got an email from PayPal trying to re-claim the entire payment.

Since I’d sold the computer in good faith, shipped it to the address PayPal gave me and banked a payment PayPal told me was from the buyer (at that address) I told PayPal to take a flying leap. Luckily, I’d already transferred the money from my PayPal account to my regular bank account.

It took PayPal over two months to remove the charge-back from my account (I couldn’t use PayPal for anything for all of that time). PayPal never did explain what the problem was, or how it was resolved.

PayPal’s fees are high and their customer service sucks. My advice to everyone is to NEVER leave any balance on deposit with PayPal — you can never be sure when they will try to take it back.

Posted by dbsmith1 | Report as abusive

Wellll, I can’t speak for banking practices in such significant metropolises as Nu Yawk, but my credit union (bellco.org) out here in South Succotash gives me unlimited wire transfers at no cost based on my combined account balances.

I can initiate them via web and wait a day, or call cust-serv and get them done in an hour. They call and check if I do an international, and past a certain dollar level for domestic, but never had a problem paying for things in NZ, or Costa Rica, or Argentina or otherwise bailing out the urchins.

Was a little weird the first time, but the reported complexity of this international finance stuff is way over-rated.

Posted by ARJTurgot2 | Report as abusive

Following up on my previous, I also pay almost all my regular bills on-line via my credit union, and that is also pretty much frictionless. I think the only check written in our house is to the wife’s hair-dresser, and I ain’t getting involved in that.

Really, I can’t explain what Felix is talking about, other than he lives in a very strange place, that has some very strange customs, and the rest of us visit the museums there maybe every decade or so, and otherwise try to go through Chicago or Miami or Dulles or non-stop.

Posted by ARJTurgot2 | Report as abusive

Please keep in mind that these are the same organizations that couldn’t figure out how to transfer mortgages to MBS trusts and then can’t even find the mortgage notes for assets worth hundreds of thousands of dollars. Why would you expect them to be able to transfer $50 properly?

Posted by ErnieD | Report as abusive

Felix,

Transferring money in Canada between two people is anything but free. The cost is at least $1.50 and since most transfers are for amounts less than $100, it’s actually quite expensive.

Posted by lwolle | Report as abusive

Giving out your bank details is not necessarily risk free, as Jeremy Clarkson would be happy to explain…
http://en.wikipedia.org/wiki/Jeremy_Clar kson
Search that page for “Diabetes UK”.
I am glad to say he allowed them to keep at least one month’s direct debit.

When I moved to the US from the UK I genuinely asked to speak to a manager rather than the monkey on the phone who was telling me that “bank transfers” meant someone at the bank wrote and mailed a cheque on your behalf.
As so often the case, the monkey was right…

Posted by TinyTim1 | Report as abusive

The Custom House division of Western Union (based in Victoria, BC) is a great service for international money transfer. You can set up wires, electronic funds transfer (account to account) or mail checks. The fees are quite competitive with banks.

Posted by Weevie | Report as abusive
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