A significant setback to the adoption of current person-to-person payments technologies is that the transactions often can’t happen in real-time. But by repurposing existing industry infrastructure, companies are devising new methods that make P2P as close to instantaneous as possible.
Improvements expected in 2013 will rely on electronic funds transfer and debit networks to speed up processing times. And according to the companies developing these products, these new technologies will usher in a wave of greater P2P payments adoption.
Like most P2P payments models in use today, Harland Financial Solutions’ Direct Payment Exchange network handles transactions through the Automated Clearing House network. The Lake Mary, Fla.-based company’s first-generation P2P network launched in October 2011 by repurposing its existing account-to-account, or A2A, technology, a tool that lets the customers of Harland’s depository clients transfer money between their accounts at separate financial institutions simply by providing and verifying the account and routing numbers of the two accounts.
“It’s really through this A2A process that we saw the opportunity to do P2P payments,” said Tom Berdan, Harland vice president of product management. “Utilizing those same ACH rails, I can send money and the receiver enters his account info. We can store that info so if I want to make a future payment, I don’t have to reenter the ACH information.”
ACH is a tried-and-true, not to mention inexpensive, system, making it ideal for something like P2P payments. But it has its drawbacks, namely the two-to-four days it takes for a transaction to clear. In addition, once a sender initiates a transaction, many P2P systems require the recipient accept the money by responding to a text message or email and provide the account and routing numbers where the funds will be transferred.
Brookfield, Wis.-based Fiserv’s Popmoney works in a similar fashion. The technology, acquired in its September 2011 purchase of CashEdge and later combined with its existing ZashPay product, uses the ACH network to send and receive funds.
ACH transactions are processed in batches, typically when depositories make overnight updates on the network to send and receive the funds used during the past day’s transactions. That’s fine for a lot of uses, like roommates sharing housing expenses or other transactions where the parties have an existing relationship, but it leaves many P2P opportunities on the sidelines, explained Neil Platt, Fiserv senior vice president and general manager of payments.
“A payment that involves exchanging a good or service in real-time, like buying something from someone you don’t have a relationship with and the receiver needs to get paid right away — that’s a use case that does not lend itself to delayed payments and does lend itself to instant payments,” he said.
Both Harland and Fiserv are developing new capabilities in their respective P2P payments networks that use EFT and debit-card systems to process transactions in real-time. With EFT, users still enter in their bank account and routing numbers. With debit, the user instead enters a debit card number and receives the payment in about the same time it takes for an ATM deposit to process.
“We think the customer adoption would increase because many people don’t know their routing and account number information off the top of their heads, so it would make it easier for the receiver to accept those payments,” Berdan said.
“We believe it’s going to be a huge boost to social payments and it’s going to unleash potential use cases that are not being used today,” Platt added.
Popmoney already allows users to send money in real-time with a debit card account. Fiserv expects to introduce receiving via debit card, as well as real-time sending/receiving via EFT, in phases to both its depository clients and the consumer-facing Popmoney website and mobile app. Harland also plans to bring the EFT capability to DPXPay network via its clients’ Web browser and mobile apps in 2013.
Mobile banking technology developer Malauzai Software is also building P2P payments technology customized for mobile phones that rely on the Visa and MasterCard debit networks. Robb Gaynor, the Austin, Texas-based company’s chief product officer, previously headed the e-channel division of a regional bank in California and says banks and their customers will benefit from the real-time processing provided by the debit networks. And while the transaction fees are higher, the implementation costs are comparable between ACH- and debit-based P2P networks.
“I ran expensive pilots around P2P with ACH and we got resounding feedback from customers that if they didn’t get paid quickly, they didn’t use it,” Gaynor said.
Fiserv and Harland intend to continue to provide ACH as an option on their respective P2P networks, providing banks more options to offer their customers. While banks typically don’t charge for ACH transactions, they may provide real-time P2P transfers for a fee—though it’s yet to be seen how that would impact adoption.
“The research is suggesting that if a consumer really wants the money right now, he’d be willing to pay a small fee to receive it right now,” Berdan said. “If you forgot to pay your car loan or mortgage and you’re going to be faced with a late charge, consumers have been conditioned to pay the small transaction fee to avoid the bigger fee. So there’s definitely some history there with consumers, but it’s yet to be seen if it translates over to P2P stream.”
Gaynor agrees that P2P payments is a revenue opportunity for banks, but questions the motives behind the industry’s reluctance to not completely abandoning the P2P ACH model.
“It may be they don’t want to disintermediate their existing model based around using ACH,” he said. “They have a lot invested in the ACH model, so they may not want that to go away or see it become less viable.”
While banks that provide Popmoney to their customers for free experience greater user adoption, Platt said it’s still too early to tell how much faster consumers are taking to the technology. He added that pricing models for P2P payments don’t just vary between banks, but even within different segments of a bank’s customer base.
“Banks will do things like segment their offering by customer segment, giving it away for free to higher-value customer, but if you’re a low-cost customer, like a student checking account, they may charge for it,” he said, adding that services like P2P are typically bundled with other products.
For consumers whose banks don’t offer P2P payments, the Popmoney website and mobile app charges a $0.95 fee to send money. While Harland offers DPXPay either as a white-labeled, standalone mobile app, or as a tool integrated into a bank’s desktop Internet banking and mobile apps, it doesn’t offer a consumer-facing option.
“Our own bank and credit union customers keep their brands in place. We don’t want to displace that with another brand because we think the financial institutions that are sponsoring these payments should be the ones out there in the marketplace,” Berdan said.
That contrasts with the Fiserv strategy, which relies on building consumer recognition of Popmoney through both its direct-to-consumer offerings and co-branding with its client depositories.
“Popmoney’s not designed to be a primary relationship,” Platt said. “It’s designed to be an ingredient brand, like the ‘Intel Inside’ brand with computers. You’re still buying a Dell or Lenovo PC, but it’s got ‘Intel Inside.’ ”
He added that as more P2P payments options emerge — like new offerings from PayPal and the clearXchange partnership between Bank of America, Wells Fargo and JPMorgan Chase — it will be important for consumers to understand which network they’re using.
“It’s analogous to Visa or MasterCard. You might have a Bank of America-branded Visa and even though it says Visa, it’s all about Bank of America. But I still know that I can use it at any merchant in the world that takes the Visa sticker,” Platt said. “That’s why we think that in order for this product and service to be successful with consumers, it needs to have an underlying ingredient brand.”