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P2P: Getting consumers to use it

2010 June 17

The Person-to-Person (P2P) payments competition is officially on.

P2P was a hot topic at last week’s American Banker Mobile Banking & Emerging Applications conference in Las Vegas. Almost every presentation and panel discussion included some discussion of P2P.

There’s a real sense that it’s finally time for banks to implement P2P.

Yesterday Fiserv announced they have over 100 financial institutions signed up to offer their new ZashPay P2P service. CashEdge has announced commitments from a similar number of institutions for their POPMoney P2P service. PayPal and Obopay of course have had services available for some time. PayPal in particular has 84 million users in the United States alone. Obopay and Mastercard recently went live with their Mastercard MoneySend iPhone mobile app.

So the questions becomes, will people use it?

P2P has been used in countries like Australia, New Zealand, and Canada for years. Serge Van Dam, from MCOM, recently analyzed 200 random transactions in New Zealand for usage patterns. MCOM provides Fiserv’s mobile technology and has run P2P payment systems in Australia and New Zealand since 2004.

Not surprisingly, MCOM found broad usage that generally replaces checks and cash. Here’s how the P2P payment usage broke down:

  • 40% were personal payments (one individual to another)
  • 60% went to small merchants (like lawn services, housekeepers, etc.)
  • 20% were to small online merchants (like eBay or Craigslist sellers).
  • Average payment size was $240

Mobile and P2P payment product announcements are nothing new. The landscape is littered with initiatives that went nowhere. But, it’s looking different this time in a number of important ways:

  1. Banks are driving the current P2P initiatives. Consumers have consistently shown they prefer to manage their money through their bank whenever possible.
  2. Consumers can send and receive money directly from their bank accounts to the recipient’s account. Consumers have repeatedly avoided P2P systems that require funding intermediate accounts. Systems like Obopay and PayPal that technically use intermediate accounts have reduced or eliminated the need for customers to manually fund these accounts. CashEdge and Zashpay don’t use intermediate accounts and use ACH bank-to-bank electronic payments instead (like traditional bill pay systems).
  3. Mobile banking is getting customers used to using their phone to manage their finances. P2P use cases are more suited for quick mobile situations than traditional desktop use cases. When you need to pay someone like the yard guy, odds are you’re not at your computer (and neither is he) — but both of you have your phone.
  4. The sheer number of banks — and therefore their consumers — signing up for P2P is getting us closer to critical mass. The value of any network increases exponentially as it adds connections (e.g. the Network Effect, aka Metcalfe’s Law). To pay someone, the recipient needs to be in your network.
  5. Most of us don’t carry checks or cash anymore.

So, many barriers have come down. There are a few more to go.

Interoperability, in my mind, is the most important barrier to bring down. None of the networks have complete coverage and it’s doubtful any network will. Nor do we want a monopoly on payments. ATM and Debit networks are great examples. There are a variety of competing networks that are interoperable. This keeps costs down and access nearly universal. With interoperability, adoption will come.

Cost is also an unknown factor. Albeit one that’s bound to change over time. Many U.S. offerings provide both standard 3-5 day ACH clearing as well as next day clearing. Look for standard clearing to be free to consumers with a charge for expedited payments.

Before you bankers cringe over standard clearing payments being free, think about what paper checks (and cash) cost you.

You’ll make money on P2P, if you can get consumers to adopt it.

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