This article is part of our Best of 2003 article series and is reprinted from earlier in in the year.
Credit unions are taking more interest in Account-to-Account (A2A) transfers, also commonly referred to as Member Directed ACH or inter-institutional transfers. This technology enables members to move their money freely from one institution to another over the Internet. This service transforms the member's share draft account into an e-checking account.
By improving home banking transactions and by making member accounts more liquid, credit unions hope to increase member loyalty. Other benefits of A2A include the added appeal of home banking, the savings from reduced check-processing costs, and the potential for service revenue.
Member interest in A2A is strong. A Callahan's survey of over 16,000 online
credit union members indicated 82% would prefer to use the web to transfer funds between their accounts - as opposed to using the phone or visiting a branch.
Some credit unions are currently providing A2A at no charge, others for a fee. Beyond the pricing decision, however, is the more strategic decision of how to integrate A2A into a credit union's offerings. The three credit unions profiled here have taken diverse strategies for implementing this service.
SECU Providing Value for Members
State Employees Credit Union (SECU), a $628 million credit union in Lansing, MI, considers eMembers one of their most important demographic groups As a result SECU strives to be on the leading edge of Internet innovation.
Initial discussions on A2A began in March 2001, though SECU did not introduce A2A until January 23, 2003. In addition to staying on the leading edge of Web services SECU wanted a solution that would help to increase deposits in the credit union.
SECU's product - Bank to Bank E-Transfers - was named to distinguish A2A activity from transfers between the members' various accounts within the credit union. Early results indicate that it is having a positive impact on loyalty. Melanie Hackett, the credit union's Manager of ACH Operations, shared that 25% of the transactions processed from June 2, 2003 to August 15, 2003 were to or from an out of state financial institution. There is no fee for using the Bank to Bank service. For example, parents use the capability to send money to their kids in college, to fund investments, or to make mortgage payments. According to Melanie, SECU currently has almost 900 accounts using Bank to Bank E-Transfers. We have seen a steady increase in both the number of transfers and the average size of the transfer. As of July 31, 2003, SECU had processed 1,647 transfers totaling $673,400. The average transaction was $409.
The credit union believes the overall risk is no greater with online transactions than with traditional paper-signature based transactions. SECU has set daily transfer limits in line with their current ATM limits ($500 daily). The credit union uses a local A2A network provider, Magic Wrighter, Inc., for their A2A origination. In choosing a vendor, SECU wanted to be sure that they could implement A2A with enough security and controls to manage any risk involved. Initially SECU looked at an in-house solution, but discovered early on that Magic Wrighter had a successful track record with other financial institutions and offered the security that they were looking for. Most importantly, the solution could be implemented with few operational changes.
Patelco Unlocks the Key to Successful Account Aggregation
Patelco Credit Union, a $3.2 billion credit union in San Francisco, began offering basic account aggregation services in 2001. Recently the credit union decided to switch their account aggregation provider to CashEdge so that they could offer A2A transfer capabilities along with account aggregation. According to John Shields, Patelco's SVP of eBusiness, Patelco felt that account aggregation usage was so low because members could only view their financial information; they could not perform actual transactions online. Patelco saw A2A as a key that could unlock account aggregation's true potential.
Patelco determined that outsourcing the technology solution was the best course. Although they initially looked at the possibility of developing A2A in-house, Patelco particularly liked using CashEdge for money movement because there was no extra staff required on Patelco's side. The price for CashEdge's account aggregation service was reasonable, and Shields points out that Patelco focused on the fact that CashEdge had a very well thought out interface that allows a single sign-on and seamless integration of the aggregated data with their home banking platform.
Patelco is beginning an employee pilot-testing phase of A2A. Their long-term plans are to integrate the two services in hopes that by adding transfer capabilities they will drive member usage of both account aggregation and A2A. Patelco also hopes that new members will begin to use the A2A service to initially open their accounts.
USC Credit Union's Creative Approach: Enhancing their Sponsor's Efficiency
USC Credit Union, a $166 million credit union located in the heart of Los Angeles, is using A2A to enhance the role they play as cashier for the University of Southern California. In addition to providing financial services to the community, the credit union's employees are also university employees who are responsible for the critical task of processing student tuition payments during the university's annual registration period. In the past this has proven to be a massive undertaking costing the credit union close to $60,000 in overhead annually. The credit union has been able to dramatically reduce these costs by implementing A2A. For example the credit union has cut their temporary employee hiring by a third during the registration period. They have also been able to reduce overtime salary costs tremendously.
The university's student information website (OASIS) was initially unable to accept payments of any kind. USC Credit Union, through the use of A2A, now enables any student, whether a member or not, to transfer tuition payments to the university from their accounts at other financial institutions via an easy-to-use online interface called e-Pay. A student may also designate additional payees, such as parents or grandparents, who are then granted the ability to log-in and transfer funds to the student account. The student logs onto the university's payment server using a secure ID and password given to them at enrollment, and are connected to the credit union's server when they click make payment. The server accepts both A2A transfers and credit card payments.
The credit union's role is transparent in the process, as they act as the payment
agent for the university. The new online payment capability has received rave reviews in addition to cutting the credit union's processing costs. According to Ana Ferber, Vice President of Information Technology, since implementing the A2A capability in July of 2002 with the help of IDS, a leading A2A provider, [USC Credit Union] has processed well over 9,000 payments for more than $25 million. Additional departments at the university, such as housing and student activities, are also interested in using the technology to facilitate simple payments by employees and students.
Credit Unions are Primarily in the Transaction Business
Each of these three credit unions has taken a different approach to using A2A to better serve both members and, in some cases, non-members. With interest rates at an all time low, credit unions core transaction and payment services become a much more significant part of the business. A2A can position the credit union as the institution where members consolidate their entire financial lives. With its automated efficiency, A2A significantly lowers barriers to inter-institutional transactions and in so doing puts the credit union in the center of members' financial activities.