3 reasons to put P2P at the heart of your payments strategy

P2P has gained widespread acceptance in the U.S. Here’s why your community bank should make it an institutional priority.

By Colleen Morrison

In 2017, every U.S. household made an average of 68 P2P payments, transferring a total of $8,648, according to Aite Group. While these statistics reveal healthy P2P acceptance, usage continues to rise as P2P achieves “exponential adoption rates.”

In today’s dynamic environment, P2P payments have escalated in importance in a community bank’s payments strategy. They have moved from stand-alone technology development requests to executive-level strategic imperatives designed to address current and emerging customer needs.

Need more information?

See our December 2018 issue for a deeper dive into P2P, as well as a comparison table. bit.ly/p2poptions

“There are two components to this,” notes Tina Giorgio, president and CEO of ICBA Bancard. “There’s knowing your existing customers and what products and services they’re using, and there’s looking forward to who you are targeting in the future and what products and services are interesting to them. For example, if I don’t have P2P as one of my payment solutions, I’m probably missing the mark with Gen Z and millennials.”

Customer demand for P2P options place additional pressure on community banks to identify offerings. Three primary drivers contribute to making P2P an institutional priority: widespread acceptance, adaptability to other use cases and a seamless experience.

P2P use now encompasses all demographics

Recent research revealed the uptick in use of P2P services by new demographics. For example, the 2019 Digital Payments Adoption Study from Early Warning Services, the network behind Zelle, found that 50% of first-time P2P users are 45 or older. It also concluded that confidence in P2P services has increased among those populations, with 52% of Gen X and 46% of baby boomers saying they trust P2P payments. Similar results emerge when you look closer at the Aite Group report, Person-to-Person Payments in the U.S. The study concluded that more than 70% of U.S. consumers across all age groups have a PayPal account. What’s more, 30% of Generation X and baby boomers report having Zelle accounts, with another 16% say they use Venmo.

“Venmo was being used by baby boomers, which surprised me, because they tend to be the generation that’s a little bit more skeptical of those types of services,” says Talie Baker, a senior analyst at Aite Group. She points out, though, that their kids—Gen X and millennials—are using Venmo and other P2P payment methods, which has led to a degree of adoption among older generations.

Blurred lines exist between consumer and small-business payees

It’s not just among age groups that P2P practices are blurring. Specific use cases for these solutions are in a state of evolution as well. Experts believe the rise of the gig economy fuels this trend. In fact, the Gig Economy Index from PYMNTS.com and Hyperwallet points to gig workers exhibiting a preference for P2P-style payments: Nearly 42% of gig workers were compensated via PayPal.
“About 20% of the traffic that we see in the [Zelle] network today is small business-related,” says Lou Anne Alexander, group president of payments at Early Warning Services. “Here’s the reason for the blurring lines: There are 28.8 million small businesses in the U.S., and only 20% of them have another employee. You might think of them as individual professional contractors, but they have some of the same needs, like to cut an invoice. The convenience that we offer within Zelle to send a request for money works.”

P2P is quickly becoming the consumer gold standard for payments transactions

This bleed between the consumer and the business experiences means that expectations are shifting. Customers wonder why they can pay a friend back for dinner with a tap of the phone, but they can’t do the same for a business expense.

“P2P is a necessary first step for consumers to feel comfortable doing larger transactions with businesses,” Alexander says. “If I can pay the pool guy pretty much in real time, why can’t I wait till the last minute and pay a larger biller? Consumer-to-business [transacting], such as bill pay, is something that’s coming but not yet available. You’re going to see that more formalized.”

“P2P is a necessary first step for consumers to feel comfortable doing larger transactions with businesses.”
—Lou Anne Alexander, Early Warning Services

This trend also may touch the B2B realm down the road. In fact, a 2017 report from KPMG Nunwood Consulting Limited, a subsidiary of KPMG, says market changes have led to “the ‘consumerization’ of B2B relationships: The personal experiences customers receive have an impact on how they evaluate their B2B suppliers.”

Across the board, as P2P matures, adoption will continue to climb in lockstep with customer expectations. These mounting market pressures mean that P2P payments will continue to be a priority as part of a community bank’s payments strategy now and into the future.

Colleen Morrison is a writer in Virginia.