When Zelle® announced they had processed over $75 billion in person-to-person (P2P) transactions in 2017, many were caught by surprise that banks were doing that much volume in P2P transactions. And with Zelle still in its the early stages of adoption, the full amount that financial institutions process in P2P transactions will be much higher than that. The industry is realizing that P2P isn't just a product just for twenty-somethings to use to split the cost of rent and last night's pizza.
P2P payments is a topic I discuss nearly every day with financial institutions as they determine how to align their P2P strategy. The financial institutions I'm talking to about P2P are typically the ones that aren't sure when or if they will join Zelle, and for some, if they will adopt a P2P solution at all.
It's a tough business decision to make at a surface level since P2P costs money to run and the prevailing market fee for P2P services is zero. P2P needs to be justified on the basis of client and account retention – the cost of doing business.
In analyzing Mercator Advisory Group's survey data on P2P payments, we see that P2P has really become mainstream. Our survey of thousands of consumers found that 57 percent are using P2P services – the same percentage that regularly use debit cards. They may not be using P2P quite as frequently, but just as many people are using P2P as use a debit card.
That's why when a financial institution tells me they don't see a demand for P2P, I wonder if we're looking at the right information and intelligence. A financial institution may not be seeing much growth in in their own P2P product, in part, because it hasn't necessarily been well promoted. Customers and members simply don't know it's available. But those same people are likely using another P2P solution.
One way to get a handle on interest and use of P2P is for financial institutions to look at their ACH file details and network files. See where consumer ACH transactions, as well as Mastercard or Visa push payments from Venmo, Google or Square are being used to fund a P2P transaction – or to cash out funds from a P2P solution to a consumer checking account.
Sometimes I hear financial institutions say that P2P just isn't that important to them – that they'll miss out on P2P but they're okay with that. I'd be cautious with that stance. It's still early yet in the P2P evolution, but we are just starting to see P2P morphing into mobile payments. And if you miss out on mobile payments, then you start to see a decrease in card payment volume. Venmo and Square Cash, for example, are allowing consumers to use their simple user interface for P2P payments, and then use those balances to make purchases.
If P2P is as successful as we anticipate, financial institutions without the right product set may find themselves playing catch up.
These are big decisions, requiring thinking about the future role that P2P may play. It will be understandable if some financial institutions take time in 2019 to assess how this all unfolds.
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