Person-to-person (P2P) Payments have long been touted as the ideal means for individuals to handle small-dollar purchases, such as paying the babysitter or reimbursing a friend for their share of the lunch tab. Existing P2P services are hindered, however, by a fragmented vendor market that reduces the number of parties able to transfer funds between each other.
The solution, say panelists at the upcoming BAI Payments Connect 2012 Conference & Expo, is to make the P2P market bank-centric. “The creation of a bank-centric P2P payments network is probably one of the most significant developments in the payments industry that I expect will happen over the next five to seven years,” says Sanjeev Dheer, division president of CashEdge, now part of Fiserv. “It’s for the banks to win the game, and if they don’t, the other services outside the banking system will.”
Dheer is scheduled to appear at BAI Payments Connect on March 12 to participate in a panel discussion entitled “Person-to-Person Payments: An Established Product that’s Evolving.” His co-presenters will be John Feldman, general manager of clearXchange, a joint venture among Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co., and Arkady Fridman, financial innovations business development manager at PayPal.
clearXchange, CashEdge and PayPal all offer services to banks that enable those banks’ customers to make P2P payments from their existing bank accounts. The service is integrated into the customers’ existing online or mobile banking experience. They need only the recipient’s mobile phone number or email address in order to send a payment. The three member banks of clearXchange cover at least half of the existing online and mobile consumer banking market; PayPal currently has 103 million users worldwide who transact frequently; and CashEdge’s and Fiserv’s other products are already integrated into the websites of more than 500 banks and credit unions, including 20 of the top 30 institutions, as defined by assets.
The ideal P2P payments system, Feldman says, must offer users safety and security, ease of use, and the ability to pay anyone, which requires a less fragmented system. Consumer adoption is “going to be driven around a very robust customer experience that’s simple and easy for sender and receiver,” he says. Such an experience requires what he terms an “air traffic controller,” his description for clearXchange’s role.
Dheer says that the bank-centric approach appeals to banks’ customers because of its simplicity and security. “Consumers don’t have to establish a financial relationship with a new company in order to avail themselves of these exciting new services. They can do so as part of their banking relationship,” Dheer says of Popmoney, CashEdge’s bank-centric P2P payments service. “Plus, they have the security and trust they already have with their online and mobile banking relationship.”
PayPal likewise believes in the benefits of a bank-centric P2P payments model, according to Fridman. “This was a very conscious choice for us to make strategically. We believe that the right user experience is to consolidate the payments system into the banking channel. We know from our research that consumers want that.”
A bank-centric P2P payments system benefits banks, too, Fridman adds, because of reduced costs of processing paper-based payments, the opportunity to expand into the demographic that has never written and doesn’t plan to write many checks, as well as increased customer engagement and loyalty.
Dheer touts P2P payments as a new source of revenue for banks. “They can now charge for a whole range of value-added payments that so far have been done outside the banking network, whether it is something like a cross-border transfer or the ability to send gift cards within a banking relationship.”
Further evolution in P2P payments may come from further consolidation into an even more unified payments network, say the panelists. Currently, payment recipients who don’t have an account with PayPal or one of the banks that offer Popmoney must create accounts with those services. clearXchange plans to offer its users the option to pay anyone, even those with accounts outside its member banks, this summer. The ideal P2P payments system should appear, from the viewpoint of the user, to work as a single network, Dheer says.
The first step in that direction, though, is making the P2P payments system more bank-centric.
Ms. Whalen is a contributing writer to BAI Banking Strategies based in Berkeley, Calif.
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