ABA Banking Journal - March 2010 - (Page 28)
P2P payments poised for banks
As ‘community’ is redefined in the electronic age, a new revenue stream and customer service channel beckons
anks have long dominated the field of payments in all its guises—cash, checks, wire transfers, and cards of all descriptions. On the horizon, though, looms a new prospect. “Person-to-person” or “peerto-peer” payments (P2P for short) look like they will catch on, but only after a battle between the financial services industry and nonbank behemoths. Formidable nonbanks are creeping into this area: Facebook, the online social network and the archetype of the new online community, has been inching toward its own payment platform; Amazon Payments LLC, a subsidiary of the big online retailer, announced in October it started offering “one-click” mobile payments; and Google is reportedly expanding its Google Checkout offering into a generalized payment platform. Those are the newcomers. EBay subsidiary PayPal, which has been around for a dozen years already, dominates the micropayment environment. “Consumers are just becoming more and more comfortable with money movement online,” says Catherine Palmieri, global head of product and marketing, CashEdge Inc., New York. “Email has become ubiquitous. We have a whole generation of consumers who have grown up with instant messaging and text messaging and virtual communities and constant, instant activity. You have that combination of things that are going to By John Ginovsky, freelance writer, and formerly contributing editor to Community Banker magazine
28 MARCH 2010/ABA BANKING JOURNAL
drive adoption.” For the most part, however, these nonbank offerings generally can be classified as business-to-consumer, or B2C, rather than P2P. The common example of the latter is when several people go out to lunch and want to split the bill, but no one has cash. The P2P function allows each of them to call up their payment platform and have it transfer the money into the account of the person who pays the restaurant. All any of them need is the telephone number of the recipient. It is precisely these types of transactions that pique the interest of banks, and which are different from what’s offered now from nonbanks.
How P2P works
CashEdge was the first of several banking vendors to enter this arena. Already, several banks have announced they are taking its product, POPmoney, live, albeit in soft introductions so far. It works like this: The sender logs into an online account and selects “transfer funds.” An amount and then the email address or mobile phone number of the recipient are entered. Recipients are notified they have money waiting to be deposited. They complete the deposit by accessing an online bank account. On the bank’s side, the transactions typically are handled through their online bill-pay systems, with slight modifications. Other vendors have announced similar offerings for their
banking clients, although their actual rollouts won’t occur until later this year. Fiserv plans to offer such a service as an add-on to its CheckFree RXP online bill payment platform. FIS, through a partnership with PayPal, will integrate that wellknown payment service with the FIS online bill payments system. “The primary thing is the greater added convenience and security,” says Erich Litch, senior vice-president and general manager of consumer services at Fiserv. “[Today’s customers] look at the digital revolution and say, ‘Why can’t I simply initiate a payment and have it go to anybody I know very quickly and seamlessly?’”
The competitive landscape heats up
Over the past year a number of studies have concluded that the P2P competitive battlefield will heat up over the next few years. “It’s really driven by a market need, a consumer need,” says Jeff Lewis, executive vice-president of FIS ePayment Solutions, adding that it would be attractive to several segments, including: Baby Boomers, who move money both to their children and their parents; the younger generation, who are comfortable with electronic payments; and people with families in other countries. The crucial thing is that people tend to trust their financial institutions with electronic transactions much more than
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