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Yahoo! and giant bank HSBC Holdings think theres money to be made in global Internet-based money transfers.
But given the sorry state of online banking, last weeks announcement that the two companies will offer global person-to-person payment and other services seems curious. Even more curious is Yahoo!s assertion that the service will be free. To be successful, the companies will have to steal market share from two entrenched players: PayPal and Western Union Holdings.
With the new service, dubbed Yahoo! PayDirect with HSBC, consumers will be able to send and receive money, at home and overseas, via e-mail. Consumers can transfer funds into their Yahoo! PayDirect account from a checking account or credit card. After the funds clear, the money can be sent to a person, retailer or other entity.
Yahoo!s announcement is actually a retread of a plan launched a year ago with a different bank, Canadian Imperial Bank of Commerce. The portal decided that the Canadian bank didnt have the global reach that it desired, so it recruited London-based HSBC, the worlds seventh largest bank, with offices in 79 countries. Last year, HSBC — formerly known as Hongkong and Shanghai Banking Corp. — had $48.9 billion in revenue. The bank has 28 million customers and is particularly strong in Asia, a key growth area for Yahoo!, which had revenue of $1.1 billion in 2000. HSBC sees promotional benefits in using Yahoos portal as a new avenue to reach customers.
“We know that payments and person-to-person payments will be a significant part of e-commerce going forward,” said Kathleen Young, an HSBC Bank USA spokeswoman. “And the global payments process is going to be a significant part of e-commerce.”
Analysts question the deal. “Banks havent been happy with the Net, except as a supplement to their brick-and-mortar banks,” said Kenneth H. Thomas, a banking expert and a University of Pennsylvania Wharton School lecturer in finance. Thomas noted that in June, Bank One, the nations fifth largest bank holding company, shut down its Internet operation, WingspanBank.com, despite an investment of more than $100 million. And Deutsche Bank recently closed its Moneyshelf online portal.
Person-to-person money transfers have long been dominated by Western Union, a subsidiary of First Data. Western Unions MoneyZap service is almost identical in structure to the offering by Yahoo! and HSBC.