Person to Person Payments
External players may have been dominating the person-to-person payments game, but bigger brands and established financial institutions are catching up with new features.
Person-to-person (P2P) payments have been around for several years. However, they are increasingly becoming a force to be reckoned with. Javelin Strategy & Research last year deemed mobile P2P the 'killer app that finally delivers,' forecasting that more than 82 million adult consumers worldwide would make a mobile P2P transaction in 2016. This figure was projected to increase to 126 million — almost half of all adults — by 2020.
P2P payments have also made a significant impact on consumer behavior, as well as in the POS and acquirer space. Many consumers now use the P2P payment method to pay for goods and services — for instance, for items bought on Craigslist, letgo and through Facebook 'swap' pages, as well as for school events. P2P has also become the payment mode of choice for payment sharing. It is used to remunerate others for contributions to group gifts for teachers, coaches, retiring colleagues, birthday celebrants and the like; to split the cost of parties; and to pay for one’s portion
In 2016, Venmo alone processed $17.6 billion worth of mobile P2P payments.
A 135 percent increase from 2015, and was named one of the best apps of the year by Time Magazine. Then, there are other innovative new P2P services like Circle, which is being touted as an innovative and wallet-friendly way for consumers to engage in digital P2P funds transfer. Circle enables consumers to text money to others for free from their mobile phones. No exchange rate markups or additional fees for transfers that involve different currencies are applied to money transfers completed with the service.
Big banks, too, are getting in on the action. The Zelle P2P money transfer service introduced by the Zelle Network consortium of banks — which includes such heavy-hitters as Bank of America, JPMorgan Chase and Wells Fargo — is gaining ground. Originally called clearXchange, and developed in a cooperative effort among these three institutions with assistance from bank-owned risk management firm Early Warning Systems, the service allows money to be transferred to anyone, providing that the sender has a Mastercard- or Visa-branded debit card. It was recently re-branded with the Zelle moniker in a move to attract a wider spectrum of financial institutions to the consortium and its P2P offering.
Zelle’s P2P transaction volume for 2016 stood at more than $55 billion and far surpassed that of Venmo.
Further, banks and credit unions have begun embedding Zelle P2P money transfer capabilities into their own apps. Capital One and Citi rank among these institutions. Some 85 million customers of more than 30 of the leading financial institutions in the United States will be able to transfer money to others via apps.
Despite Venmo and Apple Pay, it is a distinct possibility that through Zelle, banks will win a significant share of the P2P business. For one thing, money transferred using Zelle appears almost immediately in recipients’ bank accounts. By contrast, money received through Venmo goes into receiving parties’ Venmo ‘wallets’ and must subsequently be deposited into their bank accounts, a process that may require several days. Security also figures into this equation, as completing P2P transactions within a mobile banking app eliminates the need for consumers to share their banking information and password with a third party.
On the flip side, there is still a risk for banks in allowing P2P money transfers through an app — chargebacks initiated by consumers who claim they never used the app to send money to another individual who long ago spent it.
Clearly, P2P has its challenges, and some shakeout of players will likely occur. However, there are more checks in its positives column than in its negatives column, and this will be the scenario for the near and far future alike.