To a certain degree, person-to-person payments have been around since the Stone Age. First, people bartered “P2P” goods and services. Then, paper money (and eventually checks) became the channel of choice. Now, in the digital age, more forms of mobile payments give consumers even more options.
All of these developments have one thing in common — they simplify the ability to exchange money. Consumers still want easier ways to exchange money from one to another. And while cash and checks don’t cut it anymore, savvy consumers still expect “instant” ways of trading money.
Enter mobile and digital person-to-person payments.
Individuals, as senders, are finding P2P payments make life less complicated, since they can replace cash and checks with digital payments enabled by their phones. Sending money can be as easy as a text message, an email or tap of a mobile app button. While various providers have offered such services for years, adoption has still been relatively low compared to checks and cash in part because receiving money has not always put the consumer first.
"When it comes to using a financial institution’s online, mobile, or tablet banking or bill pay capabilities for these dealings, only about one in six U.S. consumers made a P2P transaction in the first three months of 2012," reads the 2012 Aite Group report "Sizing Online and Mobile Banking P2P Payments in the United States." The report goes on to cite convenience as one of the key obstacles to using electronic P2P applications.
Convenience for the receiver will ultimately drive mass adoption of P2P payments and give financial institutions that deploy this service a competitive advantage. And financial institutions are in a unique position to be the channel of choice if they select programs and applications that help consumers easily exchange money.
For example: If you send your mother $50 through a non-financial institution application, she must create an account with that provider (if she doesn’t already have one), login to the site and set up her checking account. Once some small transactions post to her account in a few days, she must return to the site to verify her account with those amounts, make the request to transfer the money to her bank account and wait three to five days for the funds to clear. So, your mother’s response will likely be, “Just mail me a check.”
The good news is that banks can offer a more direct P2P payment method that makes funds available more quickly. To accommodate this process, bank technology providers have developed methods for financial institutions to offer more convenient P2P functionality that enables funds to clear in near real time, leveraging the card networks rather than the Automated Clearing House system.
With a card network-based program, your mom can accept the $50 using a debit or credit card number. If all she has to do is provide a card number, she's is much more likely to use the technology. That's critical for broader P2P adoption.
Privacy advocates raise the objection that people receiving money may not want to share their card information with the person sending the money. In most cases, these transactions are conducted between trusted individuals and the P2P applications that enable direct-to-card transactions only require the primary card number and don't ask for expiration dates or security codes. And consumers regularly hand over their cards to strangers in restaurants, stores, and other merchants. In addition, some systems also support the ability for the receiver to alternately enter their card information into a secure, Web-based interface to complete the transaction.
Given these new technology advances, the time is now for financial institutions to enter the P2P arena. If bankers examine the usage and transaction volumes of digital P2P networks and want to own the transaction — instead of ceding that payment to a nonfinancial competitor — they need to offer P2P.
These payments can also help boost mobile banking adoption, which is a lower-cost channel to serve, and transaction volume. And at the end of the day, it’s going to prevent customers from going outside the bank to other payment providers.
P2P constitutes a trend toward social payments that make life (and banking) easier for consumers. But until sending an electronic payment is easier than handing over cash or mailing a check, they will continue to use other options.
Steve DuPerrieu is the director of product management at Computer Services Inc.