Image via WikipediaYesterday I discussed why electronic payments are great for customers and banks, but terrible for small businesses dealing in high value, low volume transactions. This morning, Finextra relays the press release announcing the partnership of S1 and PayPal. S1 provides integration with online banking, so that person-to-person payments can be made directly from an individual's bank account. The actual payment is made through the PayPal infrastructure, giving the security and support that is needed for this to actually fly.
This news is interesting, since it is giving smaller institutions such as credit unions the opportunity to offer competitively priced money transfer capabilities. It starts to put in place a real competitor to the legacy fund automated clearing house (ACH) and wire transfer systems used by the banks for Electronic Funds Transfer. EFT is perceived as being highly complex and may be considered one reason why electronic payments are going to be such an expensive proposition for small businesses. If you make a payment to a small business electronically through an online banking site such as Bank of America, its likely that the bank prints and mails a check. The small business owner has the inconvenience of the paper check still. This is not an end to end electronic solution, it just suits the customer, and the bank gets to hold your money for longer.
If PayPal and S1, or similar propositions start to really compete in the marketplace, I hope this could put pressure on the big banks to start providing better and cheaper check-free approaches for business to business payments, completely integrated with real small business online banking. This is what small businesses want, direct integration, not another service that they have to transfer funds to so they can pay a third-party. The rather hefty charges, and complexity of funds transfers to the PayPal account before making the payment need to be reduced, and competition is the only way it will happen.
This news is interesting, since it is giving smaller institutions such as credit unions the opportunity to offer competitively priced money transfer capabilities. It starts to put in place a real competitor to the legacy fund automated clearing house (ACH) and wire transfer systems used by the banks for Electronic Funds Transfer. EFT is perceived as being highly complex and may be considered one reason why electronic payments are going to be such an expensive proposition for small businesses. If you make a payment to a small business electronically through an online banking site such as Bank of America, its likely that the bank prints and mails a check. The small business owner has the inconvenience of the paper check still. This is not an end to end electronic solution, it just suits the customer, and the bank gets to hold your money for longer.
If PayPal and S1, or similar propositions start to really compete in the marketplace, I hope this could put pressure on the big banks to start providing better and cheaper check-free approaches for business to business payments, completely integrated with real small business online banking. This is what small businesses want, direct integration, not another service that they have to transfer funds to so they can pay a third-party. The rather hefty charges, and complexity of funds transfers to the PayPal account before making the payment need to be reduced, and competition is the only way it will happen.
A post from the Improving It blog
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