Person-to-Person Systems Go Prime Time

Certapay, a Canadian e-payments company, is working with groups of banks to deliver person-to-person payments to the masses, in the process turning P2P from a niche product into a mainstream offering.

Five Canadian banks-CIBC, Scotiabank, Bank of Montreal, TD Canada Trust and Desjardins Group-have introduced an e-mail money transfer service powered by Certapay technology, while in the United States, NYCE has tied its own back-end P2P capability to Certapay's front-end, giving banks an off-the-shelf P2P solution that can be offered alongside existing online banking services.

Approximately five million Canadians banking online at the five banks will be able to send e-mail money transfers, while another15 million with e-mail addresses and an account at any financial institution in Canada will be able to receive. This makes the Canadian service the first and largest bank-to-bank, P2P payment network in the world. "We're in effect a new kind of debit network in Canada," said Zack Fuerstenberg, vice president of product development at Toronto-based Certapay.

These developments aim to bring P2P out of the backwaters of e-commerce where it's languished. PayPal, the largest P2P service with 18 million registered users, generates most of its revenue by settling online auctions at eBay, its new owner. Likewise, e-mail money transfer services have met with little demand and in some cases, like at Bank One, have been shut down.

By contrast, NYCE has mandated that its 2,200 financial institutions be capable of receiving P2P payments on behalf of customers by the end of next year, using a "PINless" credit transaction that it developed some 18 months ago.

NYCE uses the term "A2A" (account-to-account), to emphasize that the transaction occurs in real-time and doesn't require intermediaries. "A2A allows me to send you money by only knowing your PAN primary account number-the physical embossed number on an ATM or debit card," said Neil Axe, director of emerging network payments at Woodcliff Lake, N.J.-based NYCE. "There's no signing up with a third party."

By allowing Certapay to be plugged into its network, NYCE has signaled banks that a turnkey solution is now available to allow them to accept A2A transactions on behalf of customers. "NYCE is the financial backbone, and we're providing the front-end technology to the bank," Fuerstenberg said.

By delivering a critical mass of banks, NYCE provides the necessary scale for P2P adoption, noted GartnerGroup analyst Avivah Litan. "There's tight integration between the banks. That's an interesting development." And one that's needed if P2P is to be saved from oblivion, she added. "I did a consumer survey on P2P, and it doesn't even show up."

One of the stumbling blocks to P2P adoption has been the need to register with a third-party service like PayPal, with which consumers aren't familiar. "PayPal operates outside of regulated financial institutions," said Fuerstenberg. With Certapay, "the bank puts it behind existing services where they're already authenticating their clients."

In Canada, where the banking system is highly concentrated, the five banks will settle P2P transactions among themselves. In the United States, that task must by necessity be performed by an EFT network. "The U.S. market is very fragmented," said Fuerstenberg. "In the U.S., we had to take a different approach, which is to work with the networks such as NYCE. It's basically the same thing we've built in Canada, just a different deployment approach."

The Certapay service can be offered in conjunction with other e-banking services from suppliers like S1, Corillian and Digital Insight. NYCE's relationship with Certapay is not exclusive, said Axe, adding that banks are free to contract with Certapay or another front-end provider, or to develop the front-end on their own. "S1 and Corillian will very likely implement A2A functionality in their own platforms. Until then, an institution would contract with both the online banking vendor and Certapay."

The Certapay service could also be combined with an account aggregation service, Fuerstenberg said. "Banks could put it behind aggregation to give consumers the ability to execute transactions."

To overcome possible privacy concerns, Certapay works with e-mail addresses as well as PANs. "If you receive that e-mail, and you authenticate, you can direct the funds real-time into your account," said Fuerstenberg.

Consumer-to-consumer money transfer is one of three generic transactions employing A2A that NYCE has developed. The second is a consumer-to-business payment in which the payee (the business) initiates a debit against the consumer's account, as authorized by the consumer. "Verizon Residential Land Lines shortly will allow a consumer to go to a Web site and grant them the authorizations," said Axe. Unlike most online bill payments, the A2A payment is made in real-time. "It's a niche market that allows the consumer at the latest possible moment to pay a bill."

The third A2A transaction (not yet live) authorizes a third party, such as a mortgage underwriter, to verify that a consumer's checking account is valid and to obtain the account balance.

NYCE has required all member banks to be certified to process all three transactions by the end of next year, Axe said. "When an institution certifies with NYCE, they're certifying for all of these transactions."