P2P Payments on the Rise – On the Verge of a Core Service

Author


Ron Mazursky

Founder and Board Member of NYPAY
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Attention Bankers: If You are Not Offering P2P Payments Now, You are Missing a Critical Customer Service Requirement

It’s becoming almost automatic. Consumers are turning to their mobile phones to pay-back their friends, family or contractors almost instantaneously. P2P Payments (also known as person-to-person or peer-to-peer payments) started with cash, then moved to checks, then online and now to mobile phones. My kids turned to it early-on to repay or collect from friends through the use of Venmo on their college campuses. Venmo has become the payment application of choice among the younger generation, and the rest of us (older folks) are beginning to hear about P2P from our banks or from the internet. There is a tidal wave of acceptance of mobile-based P2P hitting consumers – and there still is time to serve your customers.

P2P has a history. Today, digital P2P has been offered to consumers for at least a dozen years through PayPal (1999), through processors (such as FIS People Pay or Fiserv’s Popmoney) and through banks directly (through bank-sponsored services such as clearXchange, which was created by Chase, Wells Fargo, and Bank of America to offer P2P payments).

Consumers Expect to Use P2P Payments in the Future

A 2013 Mercator Advisory Group CustomerMonitor Survey found that 47 percent of consumers have already transferred money to someone electronically while a 2013 Consumer Action survey found that 64 percent of respondents planned to use P2P payments in the future.Consumers prefer their banks to be the provider of mobile P2P services according to the 2013 Consumer Action P2P study, but surprisingly many banks still do not offer this service that is quickly becoming an expected part of the payments landscape. A quick review of the top financial institutions (FIs) shows that the larger ones are offering P2P, but as we move down the list to smaller FIs, we find many without a P2P service. These FI customers will quickly move to other providers for P2P – many of whom are non-financial companies such as PayPal, Venmo (owned by PayPal), Square, Google and more recently Snapchat and Facebook. Apple has filed a patent that describes a P2P platform that can enable the Apple Watch to control P2P payments. It is reasonable to assume we’ll see P2P on iPhones in the near future.

Why has P2P become so desired? A couple of reasons come to mind. We have seen a dramatic increase in smartphones in the US, with 60-70% of US consumers owning a smartphone. Smartphones provide a convenient and seamless interface for consumers to enable transfer of funds to another party. Younger consumers, in particular, have taken to using their mobile phones to satisfy a wide variety of services, and P2P has been offered by non-financial companies at no charge if payments are made via ACH or debit cards. A growing base of consumers see P2P as a way to provide funds to their family, to friends to repay a purchase, and to pay contractors and others rather than in cash.

Evolution of P2P Payments

First, let’s keep an eye-open to what non-financial players are doing in the market. The evolution of PayPal should surely be on the watch-list of the evolution of payments. Digital P2P seems to have come alive with PayPal, but PayPal didn’t stop there. In the last 8 years, PayPal has made 8 acquisitions, and among them Zong (a telecom billing firm), fig card/StackMob/Paydiant (mobile payments/wallets), Braintree (Venmo P2P), and Xoom (global money transfer service). There is a merging of money transfer (think Western Union and MoneyGram), P2P and mobile payments functionality in non-FIs. Keep an eye on acquisitions in this space among processors and payment networks.

We’ve seen cash and check payments decline over the last several years, as those transactions have moved to debit and credit cards, to online and now to mobile-based P2P. So, where is the P2P market heading? One of the drawbacks in P2P has been the lag between when the P2P payment was initiated and when the funds appeared in the recipients account (either digital wallet or DDA account). In certain situations, the funds were available immediately, and in other situations where an ACH was used to move the money it could take a couple of days for the cash to appear in the recipient’s account. In many situations, it is urgent for the funds to be available instantly – such as when a person is in an emergency situation and the money is required for payment of some service. The good news is that we are moving towards real-time P2P and over the next few years that will become the standard or at least widely available.

Key Take-away

P2P is becoming a best practice in checking/DDA account payments. What started as a check-based payment service, then a debit card service, now uses a digital front-end (mobile P2P) to make payments to others. Financial institutions must offer a P2P service for all customers – both business and personal. It is quickly becoming a necessity that non-financial institutions will satisfy if the FI doesn’t step up. And once another entity fills this need, the financial institution has lost a part of their customer servicesfunction that they could have easily filled.

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