P2P Becoming Mainstream

by Edward O'Brien 0

Person-to-person payments, which started with cash payments, then moved to Western Union to enable long-distance money transfers, finally evolved in the last decade to the introduction of digital payments/money transfers via PayPal and an array of nonbank competitors. This latest evolution has become a concern among financial institutions (FIs) and has caused them to begin to offer their own versions of P2P. Unfortunately, bank P2P innovation has lagged the development of P2P from nonfinancial institutions.

The most exciting new development in this area among FIs is clearXchange, the first bank-owned P2P backbone. The network is a first step in enabling the banking industry to take back ownership of P2P. But the front-end, customer-facing applications are still owned by individual banks, and we have not seen the FIs leading the innovation of P2P services. That honor belongs to companies such as PayPal, Venmo (also owned by PayPal), Cash (owned by Square), Google Wallet, and an array of other smaller start-ups.

Note that PayPal is the granddaddy of digital P2P and Google Wallet has the reach of millions of Gmail users today. For more information on the P2P market today, see Mercator Advisory Group’s recent Research Note titled P2P Payments: Financial Institution vs. Third-Party Digital Solutions.

Mercator Advisory Group recently completed a study of the top 40 bank-holding companies in the United States and found that three-quarters of them are offering some form of P2P to the market. Of the 31 FIs offering P2P, the most frequently occurring service is Popmoney (owned by Fiserv), followed by ClearXchange, Mfoundry/PayNet (owned by FIS), and an array of private-label and one-off P2P solutions.

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