Need to reimburse a friend for your share of a restaurant tab or pay the babysitter? These common transactions – known as person-to-person or peer-to-peer (P2P) payments – present a revenue opportunity that banks have yet to master. Bankers might take note of recently-launched Square Cash in order to stay relevant in the emerging P2P market.
What is Square Cash? Unveiled in October 2013, the email-based platform delivers a simplistic P2P pay experience that could appeal to a formerly disinterested consumer base. Users are only required to make a one-time entry of their debit card number when sending money to a recipient’s email address.
This means that you don’t need to rely on traditional bank payment options like writing a check or running to an ATM. Additionally, you can send up to $250 per week for free without providing additional sender or recipient information.
Square’s email-based platform has drawn some rather unjustified criticism around security of card information (all personal information is entered and encrypted through their secure website) and, in reality, warrants some praise. Square has effectively designed a product that overcomes the burdensome registration process that typically requires users to input both financial and personal information.
And while the majority of regional and national banks already offer P2P services, none have been able to achieve large-scale consumer traction. Chase was a P2P pioneer when it launched QuickPay in 2010 for its retail banking customers. It is also part of a five-bank consortium known as ClearXchange that allows its users to send funds to customers of member banks by providing their email or phone number. Similarly, financial technology provider Fiserv offers Popmoney, which serves as a primary P2P network for big banks like US Bank and Ally.
One problem is that these bank P2P solutions are limited to customers with bank accounts at one of the member banks. Further, banks’ ACH-based P2P payments take longer to clear than Square’s debit-based model and often require cumbersome enrollment steps, making it preferable for consumers to simply write a check. To little surprise, a recent survey by TSYS found that only 20 percent of consumers had tried P2P services.
It’s only a matter of time before the majority of smartphone-toting consumers begin to experiment with digital alternatives to checks. And now is the time for banks to assert control over the P2P market before upstart rivals like Square win over these tech-savvy consumers. Though P2P initiatives may not ultimately be big top-line contributors, they offer major incentives like keeping third parties out of the payments space and trimming payment processing costs.
Banks will naturally be wary of the potential security gaps in Square’s P2P model but could benefit from mimicking its expedited enrollment approach, using online banking credentials for quick registration (an improvement over the current need to provide account and routing numbers).
Banks may also be able to increase consumer adoption rates by making existing P2P products and enrollment available in their native mobile banking apps (several banks have already done so). According to Monitise, 48% of bank account switchers in 2013 stated that mobile banking services were either important or extremely important in their decision to switch banks. Progressive institutions may even go as far as reminding customers of available P2P products whenever they order new checks or make an ATM deposit.
If they want their P2P solution to be the default payment method, banks must add a user-friendly flavor to current offerings, simplify enrollment processes and educate customers on the new way to settle the dinner tab or send birthday cash.
- Have you developed a P2P payments strategy or reviewed the competitive challenge posed by new third-party providers?
- What is hindering customer adoption of your bank’s P2P payment service?
- How could current P2P tools be revised to improve ease of use and customer appeal?