Going Head-to-Head in Digital P2P Payments in the U.S.
People have engaged in person-to-person (P2P) payments for centuries–beginning with the barter system, through the invention of money and checks, and in the digital age, in which funds can be exchanged electronically via online and mobile applications. The size of the U.S. P2P payments market is driving intense competition between financial institutions (FIs) and alternative P2P payment services. Many FIs now offer P2P payment services as part of their overall digital banking experience in an effort to remain at the center of the consumer’s financial life. Alternative P2P payment services offer innovative digital P2P payment experiences to attract consumers, build a strong customer base, and drive revenue through other value-added products and services. Although digital P2P payment capabilities have been around for at least a decade, they have been slower to take off with consumers than media coverage might suggest, and research reveals that the digital P2P payments business is the FIs’ to lose.
Ubiquity is the key for any provider to establish long-term viability in the digital P2P payments space. If consumers must stop and think about how to make P2P payments, they will be less likely to adopt new payment methods. Ubiquity has been hampered in part by the lack of immediate access to funds and the lack of interoperability between service providers. In many cases, it takes a couple of business days for funds to arrive in a bank account, and P2P payment services are only available via closed networks, meaning that to exchange funds digitally, both consumers must have an account with the same service provider. But times are changing.
Visa, Mastercard, and Early Warning have delivered capabilities to facilitate real-time, interoperable payments. The card networks have enabled real-time P2P payments via the debit rails, enabling users to reach nearly every debit card holder in the U.S. Early Warning has enabled real-time payments via clearXchange and has introduced Zelle, an interoperable P2P payment service, which will be offered by U.S. FIs participating in the clearXchange network. Early Warning currently has 19 FIs on the network, including some of the largest U.S. banks, and has announced partnerships with CO-OP Financial Services, FIS, Fiserv, and Jack Henry to make its network available to nearly every FI in the U.S. Alternative P2P payment services, such as Circle, are facilitating global interoperable payments via API and blockchain technologies.
And then there is the PayPal-owned Venmo, which is certainly a leader in the P2P payments space. Although PayPal has not announced participation in any of the aforementioned interoperability schemes, PayPal can be considered a household name, and Venmo is becoming a verb among millennials, who can often be heard saying, “Just Venmo me,” in reference to P2P payments.
The size of the P2P payments market indicates there is room for more than just one winner in the space, and it’s likely the winners will be a combination of both FIs and alternative P2P payment services. Anyone looking to compete effectively in this space needs to understand the leading market trends and the leading market players.