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P2P Payments Will Fail Without Changes

2010 July 20
P2P mobile payments must connect

P2P payment networks must connect

There’s a lot of momentum behind Person-to-Person (P2P) payments in the U.S. JP Morgan Chase is the most recent, but PayPal, Fiserv, CashEdge, Obopay, and others are signing banks and trying to get consumers to enroll and use the service. The networks must interconnect if banks want the new payment revenue.

P2P promises the ability to pay anyone electronically essentially as a check or cash replacement. Mobile is the ideal platform for P2P since we’re usually not at our desk when we need to pay someone. With P2P, users can send (or request) money to others using just an email address or mobile phone number.

P2P also offers a strong ROI for institutions. Handling cash and checks is expensive. Theft and fraud are real costs of doing business when dealing with cash and checks. Yet banks can’t charge for cash and checks. P2P can reduce the number of cash and check transactions while generating new revenue from expedited payments.

Current P2P offerings generally allow free transfers for 3-5 day clearing, offering an opportunity for banks to generate float revenue. Users can choose expedited (next day) clearing for a fee. Banks make more money in both cases because the transaction is making new money while costing less. That’s a good business model. It’s certainly better than free checking.

The problem is that P2P offerings aren’t connected. There’s no way for a Fiserv customer to pay a PayPal customer. They system is missing what Jim Kittridge at Wachovia a few years ago called “The Big Directory in the Sky.”

P2P payments simply will not go mainstream if users must belong to multiple networks. People already forget their online banking password. They’re not going to memorize credentials to multiple systems. They’re probably not going to remember what network they use. They’ll either identify their financial institution or PayPal. They won’t know it’s a CashEdge or Fiserv network. How many consumers know what debit card network their cards use?

The system needs The Big Directory in the Sky. P2P needs a standard mechanism to see if an email address or phone number is registered on any of the networks then route the payment to that system.

Yes, there’s a ton of complexity and coordination to work out but it’s possible. Americans should look north to Canada. Canada has had P2P payments for years through the industry consortium Interac.

Canada’s system isn’t perfect and Canadian bankers would likely agree a few tweaks are needed. However, it’s a suitable model for us to study as we figure out our own system.

The American market is bigger and more complex. However, there’s also an opportunity for more revenue given economies of scale.

P2P networks must interconnect or they will fail.

This sounds like a task for NACHA.

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6 Responses leave one →
  1. Steve smith permalink
    July 21, 2010

    What are you talking about? Anyone can join PayPal and send money to anyone else. They are doing just fine without having banks jump in.

  2. July 21, 2010


    We couldn’t agree with you more. uMonitor offers a P2P model that leverages existing channels such as online banking and mobile without the need for a network or as you put it in you blog “The Big Directory in the Sky.” The value is that bank customers and non customers will leverage the bank brand for P2P payments and not direct consumers to other third party networks. We help banks become the next PayPal or ZashPay. uMonitor acts as the third party facilitator of the ACH on behalf of the bank or credit union. Non bank customers will have the option to register at the bank website to keep receiving/sending money to customers of that specific bank. Big cross sell opportunity for banks wanting to market to non customers via email.

    – Jeff

  3. July 21, 2010

    PayPal is the largest P2P network in the US with about 84 million accounts. However, even after nearly a decade, PayPal hasn’t put much of a dent in the cash and checks used to transfer money from person to person in the U.S. PayPal is primarily used to pay non-traditional merchants, particularly on eBay.

    Furthermore, PayPal and banks have considered white labeling PayPal’s payment rails for a while. For example, I personally was involved with efforts to facilitate this in 2008. Banks are reluctant to train customers to use their PayPal ID to transfer money. This approach encourages bank disintermediation.

    It’s unlikely any one provider will control the entire P2P ecosystem. It would be bad to have a monopoly. Therefore, we need a way for all the networks to work with each other. Networks are stronger as their nodes increase. P2P needs the ability for all P2P users to connect with each other.

  4. Jerry Wanters permalink
    July 22, 2010


    And you don’t think PayPal hasn’t considered being a part of the banking system. You need to become more savvy about american businesses. Are you aware that Twitters owner sees a niche and is entering the banking sector. Don’t let a few “big” apples spoil the bunch. Come on. The issue here is that their needs to be a solution that does not require individuals to join a vendor service just to receive a payment. Sounds like you missed the benefit of that service. Non-customers do not have to “join” to accept payments. The reall marketing opportunity here in having a bank become a portal for all transfers. This is where true marketing can be captured to non-customers. The promise behind any business model – how to drive more awareness of products and services.

  5. July 23, 2010

    Consider the phrase “think globally, act locally!”. Certainly a job for NACHA but this would still be the Big Directory in the Sky for U.S. consumers. What about Mexican residents and virtually every other nationality sending money home? The directory has to be global and also capable of providing settlement details to the sending institution whether that institution is CashEdge, PayPal, Obopay or any bank, credit union or pre-paid card issuer. Local P2P, International P2P.

    Now if only there was a global organization that could act as the trustee of the directory… oh wait, there is one! SWIFT has a directory of some 8000 banks globally and would be the ideal candidate as the trustee of a global registry that is automagically populated any time a consumer registers as a sender with their FI.

    100% agree, that the majority of consumers already have a bank account and they can withdraw cash, write cheques (checks) and use their debit card. Any service that requires a new account be created and managed just to send and receive money will always be sub-standard to the convenience of using your existing account(s).

    When a bank partners with PayPal, Obopay and other stored value account providers, it just waters down the fee revenue for everyone. It is important to take off our industry hats and provide the messaging that empowers payments between the PayPals of the world and any bank, carrier etc. where the consumer has their account.

    Happy to provide more details… as long as we don’t invalidate our $30 Million investment in IP!

    my $.02

  6. July 25, 2010

    An alternative to PayPal or a bank-based P2P solution is XIPWIRE which is completely bank agnostic. XIPWIRE (pronounced Zip Wire) is a mobile payment service that enables people to securely send and receive money using a simple text message.

    The key challenges facing the deployment of a viable P2P solution are usability, security and interoperability. XIPWIRE’s platform addresses each of these concerns by turning the mobile phone into a universal payment intrument. Check out for more info.

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