People Paying People

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Mobile platforms are moving more payments between individuals

By Collin Canright

Use of mobile person-to-person payments is increasing. But consumer habits die hard, and cash is still king when most consumers pay one another.

 Even so, so-called P2P activity more than doubled between March and December of 2015, according to consumer surveys by First Annapolis, a financial services consulting firm in Annapolis, Md. “We are seeing a change in consumer behavior and adoption of mobile P2P,” says Hugh Gallagher, the company’s principal.

However, P2P transaction volumes are still small compared with total payments volume, and consumers are not on the whole clamoring for P2P payments, points out Talie Baker, an analyst with Aite Group’s retail banking and payments practice. “People are not aware of these applications right now,” she says.

What studies show

Various research projects have studied the use of P2P payments. A survey by First Annapolis in March 2015 showed that about 20 percent of smartphone owners had engaged in some P2P mobile activity, or about 8 percent of the total U.S. population. A follow-up survey by the company eight months later showed an increase of 35 percent of smartphone owners engaging in P2P payments, or 20 percent of the total U.S. population.

A P2P payments report by the Boston-based research and consulting firm last year showed that about 10 percent of consumer-to-consumer payments were made using mobile devices or online. However, the top three payment methods people used to pay one anther were cash (79 percent), checks (56 percent) and PayPal’s P2P platform (49 percent).

Smartphone owners between the ages of 30 and 39 are the most likely to take advantage of mobile P2P services, Baker points out.

Hurdles to adoption

One of the barriers to P2P adoption has been that mobile payment apps typically only enable accountholders at the same financial institution to seamlessly transfer payments between each other. When consumers want to make P2P payments to accountholders of other banks, payments usually use the automated clearinghouse infrastructure to move money through the banking system to reach another consumer account.

 “The problem with P2P today is it is not interoperable or globally accessible,” says Terry Dooley, executive vice president and CIO of the Shazam Network, a member-owned debit processor and financial services system provider in Johnston, Iowa.

 Shazam provides a mobile app to its member financial institutions, which includes newly available P2P functions. Volume through the app is small but increasing, Dooley says. Consumers like the ability to move funds regardless of which financial institutions are involved, and they generally do not understand the reason for the different delivery times of different payments, he says.
 
Looking ahead

Current payments technology, however, shouldn’t be a barrier for community banks offering P2P payments, analysts say. In addition to the introduction of more mobile payment apps, bank technology vendors that community banks rely on are more actively supporting universal mobile and P2P payments, Gallagher says.

“At this point, there don’t appear to be any real technology obstacles for small banks to provide these kinds of services to their customers,” he says.

Conspicuously, P2P services from the large chain banks do not show high adoption rates, and if the largest banks are having difficulty driving adoption, how will community banks fair in selling a P2P option? “It will take a lot of marketing and education to get these applications to become mainstream,” Baker says.

Nevertheless, payments advisors say, community banks may want to deploy mobile and P2P payment platforms—or at least learn more about them to prepare to deploy them—to stay on par with larger banks and be in position to serve customers as adoption continues to grow.


Collin Canright is a financial writer in Illinois.

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