Banks today struggle to make money from electronic person-to-person payments, but some have a more distant goal in sight: they are counting on P2P as the foundation of mobile payments.
Electronic P2P is expanding and could ultimately amount to a market opportunity in the neighborhood of $80 billion to $120 billion, Paul Grill, a partner at First Annapolis Consulting, said in an interview.
But P2P by itself lacks a compelling business model and many leading providers offer it to consumers for free, Grill says.
"There is no clear path to driving revenue from P2P, let alone profits," he says.
In a study of 12 leading U.S. P2P providers conducted during the second quarter of this year, Grill found that most consumers use P2P to pay bills on an ad hoc basis, to pay micromerchants or to shift funds among family members.
The largest P2P networks leverage some 70 million consumer accounts associated with Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co, via the banks' clearXchange venture. PayPal Inc., a unit of eBay Inc., has about 50 million active U.S. accounts.
More than half of P2P services now enable new-customer registration entirely through a mobile device, while 75% of these offerings can fill in key information for payment recipients from a user's existing contact information. Both of these features ease adoption and drive use, Grill says.
Banks consider P2P a good basis for experimenting with mobile wallet technology, Grill says.
"In remote payment environments, apart from the point of sale, P2P may help consumers get used to using mobile phones to enter their credentials, register for payment services and use different transaction-verification processes, helping them walk through the steps of a mobile wallet-like interface," he says.
But most banks have not given P2P much of a marketing push, for a variety of reasons, Grill says. (JPMorgan Chase, which bought a Super Bowl ad to promote mobile P2P, is a clear exception.)
"There has been some promotion of P2P payments but in general the area still suffers from lack of visibility among consumers," he says.
Certain banks such as USAA are teaming up with PayPal to offer P2P, he notes, while others consider PayPal a competitor, Grill says.
"In the one sense, higher visibility of P2P could create opportunities for banks, but as its profile rises, that could benefit PayPal," he says.
While there may be no direct connection between today's P2P products and the mobile payment offerings still in development, "banks will continue to pursue P2P as a way to create stickiness with customers and build relationships that could be the foundation for introducing mobile payment later," Grill says.