P2P Payments Will Fail Without Changes
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.