With all the hype about Apple Pay and whether or not it will be a huge success – recent news about some merchants shutting it off notwithstanding – people are finally looking at mobile devices as a viable way to pay for goods and services. It’s been a slow march to get to this point, but with millions of new iPhones able to make payments at thousands of locations, along with Android and other NFC-enabled devices and mobile wallets that have been doing it for years, we may finally have reached critical mass on mobile payments.
Besides these proximity-based system, an Internet-based payment area that’s also enjoying a higher profile is P2P payments, which involves sending money directly from person to person. Dwolla was one of the first in the space back in 2008, and allows individuals and businesses to send money to other Dwolla users using email, a phone number, Linked In and even Twitter.
Another hot P2P provider, especially among millennials who never seem to have any cash on them, is Venmo, which is owned by PayPal. If you need to split a bar tab or restaurant bill or pay a friend back for spotting you some cash, Venmo seems to be the way to go. They don’t charge fees on most major credit cards, and the payment recipient doesn’t even need to have a Venmo account. As long as you’ve got a phone number or email address, you’re set.
Others who have jumped into the P2P space include financial services and payment providers such as Fiserv with its PopMoney service and FIS. And let’s not forget M-Pesa, probably the most successful case study for P2P.
The P2P payment space may have started life with upstart providers, but now the big guys, a.k.a. banks, are getting into the game, even if they are a bit late.
Just recently, Groupe BPCE, the second largest bank in France, kicked off a new service that lets customers tweet money to each other. You don’t even need to be an account holder to send or receive funds! As long as users hold some sort of French bank card, they can use the free service to send money to anyone else over Twitter.
In the UK, a number of banks have joined up through Paym, a P2P payment service from the UK Payments Council. Some of the names that have signed on include Barclays, Royal Bank of Scotland, HSBC, Santander, Lloyds and NatWest. The service uses mobile numbers linked to a bank account, and currently there are no fees involved. And not to be left out in the cold, the U.S. has clearXchange, which is sponsored by Bank of America, Capitol One, JPM Chase and Wells Fargo.
P2P will likely replace cash for a lot of transactions, especially small ones, but does it make sense for the large amounts of money or transaction volume that businesses experience? And given that most P2P transactions are free to both sender and receiver, how do the payment providers make money? Dwolla does charge 25 cents per transaction for amounts over $10, which could add up.
For now, it looks like P2P payment providers are mostly interested in signing up customers and getting them to download their apps with monetization coming later. That kind of strategy usually fails spectacularly, but if the payment providers can make their service indispensable, when they do start charging fees customers won’t be so quick to abandon them.