P2P Payments and the Death of Payments as a Business



David True

President and Board Member, NYPAY


As I’ve noted elsewhere, everybody loves a catchy headline. But catchy without substance becomes fluffy marketing, and that I try to avoid. Let me know in your comments if I’ve succeeded.

If I’m arguing payments as a business is dying, I should be clear in defining payments. By payments I mean moving value from one party to another safely, securely, and reliably. Not unsecured lending (which has its own challenges).Back in the day one needed to build a network for payments, which is what Visa, MasterCard, Amex and others did, establishing themselves as the trusted parties in the middle who make it all work: signing the agreements, setting the rules, running the engine.

This contention would be a long post on its own, wholly apart from P2P payments. And since this post is about P2P payments, let me just mention a few things happening in payments that affect profitability:

• Pressure on interchange rates: the Durbin amendment, lawsuits from merchants, the interchange caps in the European Union
• Blockchain as a way of eliminating middlemen
• The growing ability of merchants to squeeze acquirer fees

Since the legacy payment companies built their payment networks, other networks– mobile phone, Internet/WiFi— have sprouted and become widely available. And bright technologists, looking at the complexity and cost of existing payment systems, have developed numerous ways to simplify the process: think how easy Square made it to become a physical merchant and Stripe has make it in e-commerce.

And those largely make the existing system easier to use. Throw into the mix the explosion of activity around Blockchain and distributed ledgers, which offer trust without a party in the middle, and the many efforts as faster payments (think the Fed task force), and you’ve got risks to the legacy payment networks.

Now let’s think about P2P payments. As my colleague Ron Mazursky recently argued, P2P payments will soon be a core banking service. And not just for banks; even BlackBerry (remember them?) just announced an alliance with PayPal for P2P payments through BlackBerry’s messenger service.

But as many have also noted, P2P payments will not become a significant source of revenue. Sure, they are some solutions (e.g. PopMoney) that charge, but many more (Square Cash, Venmo) charge little or nothing. And the growth is coming from free solutions, setting customer expectations that will be hard to change.

The message is consistent: P2P payments are not a way to directly create revenue.While most current solutions use existing networks, providing some revenue to legacy players, I’m sure there are some — existing or contemplated– that use alternative methods. And there will be more.And why should it stop with P2P? Merchant don’t like the cost of accepting traditional card payment– why not get paid via a P2P-like system? Small merchants are doing this today; with the concept and means to execute available, this can only grow.

So if Ron and I are both correct– P2P payments are becoming a core requirement for banks and they will not directly drive revenue– organizations that traditionally made money from payments must be doing some hard thinking or else burying their head ever more deeply in the sand. Do P2P payments become a means of reducing attrition in profitable customers? Do they get buried into some kind of sales app, making it easy for people to purchase and providing banks a share of the revenue from the sale?

This is open season for creative thinking. Consultants, polish your pitches.

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