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The market for person-to-person payments, which has percolated on low heat for several years, is showing signs of turning up the temperature.
As an example of how far the market has come, the two major P2P payments networks, Fiserv Inc.’s Popmoney and clearXchange, a system unveiled last year by Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co., now account for roughly three-quarters of all U.S. online-banking users, according to an estimate given during a panel discussion at a retail-banking conference on Wednesday by Sanjeev Dheer, a division president at Fiserv.
“It’s staggering to me” that the two networks have embraced so many potential users in merely two to three years, Dheer told the audience, given the deliberate pace at which banks typically adopt new payments products. While BofA and Wells are already live on clearXchange, Chase is expected to come online next year. More financial institutions will be invited to join the network, according to John G. Feldman, general manager of clearXchange and another member of the panel, which appeared at the Bank Administration Institute’s Retail Delivery conference in Washington D.C.
Meanwhile, Popmoney now claims 1,700 banks, including five of the top 10 and 14 of the top 30, according to Dheer.
Dheer estimated the total U.S. P2P market at “well in excess of” 15 billion transactions annually, nearly all of which represent cash replacement and so are potential incremental electronic-transaction volume. “P2P is a net new transaction stream. There aren’t many of those left,” noted Patricia Hewitt, director of debit advisory services at Mercator Advisory Group, Maynard, Mass., and the panel’s moderator. “It’s still very much an open market. That’s the opportunity you have here.”
That kind of volume potential is luring both bank and non-bank players into a market that languished for many years, with banks widely regarding it as having low profit potential. PayPal Inc. began offering a P2P service through banks in 2009, and even Square Inc., recognized chiefly for its mobile-acceptance service, advertises its product’s capability to process card payments between individuals.
Some new entrants are offering faster funds settlement to satisfy the demands of mobile-device users. Dwolla Inc., a startup in Des Moines, Iowa, introduced earlier this year real-time settlement between bank accounts and Dwolla accounts, which can be used for P2P payments and to pay merchants. Fidelity National Information Services Inc. earlier this month unveiled PayNet, a system that allows real-time settlement for P2P and bill-payment transactions based on FIS’s NYCE debit switch.
And before year’s end, a Paducah, Ky.-based vendor of core-processing services to banks will begin offering a service that will take advantage of new transaction codes from Visa Inc. and MasterCard Inc. to enable real-time P2P settlements between cardholders, Steve DuPerrieu, director of product management at Computer Services Inc., tells Digital Transactions News.
CSI sees the use of the card networks’ faster switching capabilities as a key advantage. “All the other P2P services use [the automated clearing house],” says DuPerrieu. The ACH typically settles credit and debit transactions on the day after they are initiated, a lag that is widely seen as a disadvantage for mobile P2P. “We wanted it to be instant,” says DuPerrieu about settlement on the new CSI service, which will be offered to the company’s 5,000 clients.
During the panel discussion, Fiserv’s Dheer, who said he prefers the term “social payments” to the abbreviation P2P, underscored the importance of real-time or near-real-time settlement for the market’s continue growth. He pointed especially at the expectations mobile users have for faster results. “The future of social payments is mobile, and it’s real-time,” he said.
