When people want to send money to someone, the first question they ask starts with "do you have," followed by the name of a person-to-person (P2P) payments provider. Community financial institutions want to be part of that conversation.
The COVID-19 pandemic slowed the world down. But it had the opposite effect on P2P payments. Whether it's Zelle® or other providers, P2P saw explosive growth across all age groups and providers in the past year.
The P2P payments growth trajectory was there before COVID-19, but the pandemic drove even more consumers to those payment options as a safe, no-contact alternative to cash and checks. For instance, 500 financial institutions were live through Fiserv with Zelle as their P2P service as of December 2020.
Financial institutions understand that P2P payments are no longer just a "nice to have" service. People expect to move money to other people through their financial institutions. If they can't, they'll go elsewhere.
A credit union executive recently told me, "These third-party P2P providers are hanging on to my core deposits, and I want them back." That says a lot.
It's clear to community financial institutions that offering a P2P service can change the game in financial services. Here are five reasons why.
People expect to move money to other people through their financial institutions. If they can't, they'll go elsewhere.
1. P2P Users Are More Engaged
Generally, people who use P2P consistently engage to leverage the service.
That digital engagement is an opportunity for financial institutions to have their brand regularly in front of consumers. Whenever a member or customer shows up at a financial institution's website or app, it's a chance to deepen the relationship, build loyalty and offer additional products and services.
We know that people who are more digitally engaged are taking out more loans and using more revenue-producing products. That consistent pattern of use from a P2P perspective drives engagement.
2. P2P Helps Level the Playing Field
Every apparent disadvantage offers an advantage. That applies to community financial institutions competing in a market with the largest banks and credit unions.
Yes, community financial institutions are smaller, but they have powerful local connections and loyalty. Offering P2P services further levels the playing field because the service is the same as that offered by the biggest financial institutions. And community banks and credit unions are taking advantage of the opportunity. For example, approximately 70 percent of the financial institutions offering Zelle through Fiserv have less than $1 billion in deposits.
Marketing that service adds to the advantage. P2P use can increase significantly when the financial institutions offering the service make a concerted effort to let customers and members know about it.
3. P2P Meets Consumer Expectations for Real Time
Many consumers have a simple expectation when moving money through a P2P service: If they can hand someone cash today, shouldn't they just as easily be able to do the same digitally?
Having access to money in real time is at the forefront of consumers' minds. According to recent Expectations & Experiences consumer trends research from Fiserv, six in 10 P2P users say they expect money to be transferred within minutes.
But not all P2P services are equal. Some require an interim account where it looks like the money is available in real time, but the consumer still must transfer the money to a bank account to get access to those funds.
Offering the P2P service directly through a bank or credit union erases doubt about real-time access to money. The funds are in the account within minutes.
As the expectations for speed continue to ramp up, financial services won't be excluded from the pressure to deliver on the promise of real-time money movement.
4. A Strong P2P Strategy Reduces Disintermediation
If consumers can't get a service from their primary financial institution, they'll go elsewhere. And for P2P, there are plenty of options.
Those third parties understand the value of digital engagement. They provide a good user experience and get between financial institutions and their customers and members. They treat every visit to their website or mobile app as another opportunity to sell more services, often services people could be getting from their financial institution.
Community banks and credit unions can limit that disintermediation. Offering a P2P solution helps develop broader relationships, meet consumer expectations and let customers and members work with their trusted financial institution.
Still, third-party providers will continue trying to get as many deposits as possible to keep that money within their ecosystems. It's a significant threat to financial institutions, especially smaller community banks and credit unions.
Many consumers, though, want those deposits to stay with their financial institution. The Expectations & Experiences research found that 53 percent of consumers prefer that P2P deposits be transferred directly to their bank or credit union account.
Dollars and deposits can slowly disappear over time. Being able to provide compelling digital capabilities is a significant part of the strategy community financial institutions can deploy to defend their turf.
5. P2P Can Reduce Expenses
Digital engagement helps drive longer-term loyalty, and keeping a customer or member is far less expensive than getting a new one.
Mix in the reality that digital payments cost only a fraction of processing a check, and it's clear that P2P can help a financial institution's bottom line.
Joining the P2P Conversation
Adopting a P2P service can be a standard integration that doesn't require vast amounts of resources. And the benefits, both for the community financial institution and its customers or members, can be far-reaching.
When people send money, they expect convenience, simplicity, security and as close to real-time movement as possible. Becoming a part of the P2P conversation is a matter of meeting those straightforward expectations.