"Dear Mom & Dad: Don’t Send Money, Send Your ATM Card"

Outside The Bank

Yahoo! (Sunnyvale, Calif.) has teamed up with HSBC Bank U.S.A., a subsidiary of HSBC Holdings plc (London, $983 billion in assets) in an exclusive partnership to offer a new way for people in the United States to send money abroad.

The new service, called PayDirect, offers the recipient the option of using an ATM card to collect funds. "The clear differentiator is the card," says Richard Kimber, senior executive, Global eBusiness, HSBC. "It can be used anywhere from Mexico to India to China." Each company will offer its own branded version of the service: Yahoo! PayDirect and HSBC PayDirect. The services will share a common technology platform but will reach complementary audiences, according to Kimber.

How It Works

Enrolling in the PayDirect service opens up a special-purpose online-bank account with HSBC, which the sender can fund from any other U.S. bank account. Then, funds from the PayDirect account can be transferred to any number of subsidiary accounts. "From a technical and a regulatory standpoint, it is a subsidiary, or sibling, account," says Dickson Chu, general manager, Yahoo! PayDirect. "The actual, regulated bank account is the one that you're funding."

Finally, the sender designates how he or she wants to make the funds in the subsidiary account accessible to the receiver: whether through a MoneyGram outlet for rapid access or an ATM on the Cirrus network, with ATM switching technology provided by eFunds (Scottsdale, Ariz.).

Within five days PayDirect will send an ATM card to the intended receiver via DHL courier service. To activate the card, the sender has to set the PIN and then relay it to the receiver-preferably over the telephone, using a prepaid five-minute "virtual phone card" supplied online, says Chu.

Once that process is completed, everything else is in real time: ongoing funding, information and access. "You can track the status of the card every step along the way, and you can also check transactions against the card," Chu adds.

One Degree of Separation

The product's regulatory status is unusual in that recipients can draw funds from a U.S. bank account without having to comply with account-opening procedures as per the USA Patriot Act. "The identification process really focuses on the sender," says HSBC's Kimber.

Nevertheless, PayDirect does request the recipient's name and address and checks that information against OFAC watch lists. Kimber points out two other mitigating factors. First, the usage limits are too low-up to $1,000 per transaction-to support large-scale money laundering. Second, "the recipient is usually well-known to the sender," he says.

HSBC's business model focuses on fee income rather than interest income from the float between funding and withdrawal. Furthermore, both HSBC and Yahoo! fully intend to get closer to their respective PayDirect customers, both at home and abroad. "We see it as a way of introducing people to HSBC and cross-selling to this particular group," says Kimber.

NOTE: "Outside the Bank" is a new BS&T column focusing on nontraditional entrants in financial services either competing with or forming partnerships with "traditional" banks.