P2P Apps Now Dominate Payments Between Individuals, Eclipsing Cash
P2P platforms are consumers' choice about half of the time, and the providers of P2P services enjoy considerable stickiness. But a minority say they could walk away from their current platform if key concerns aren't addressed.
By Steve Cocheo, Senior Executive Editor at The Financial Brand
Person-to-person mobile apps have solidified a majority share of consumer money transfers between individuals in the U.S., according to a recent survey by the Federal Reserve.
For the first time in the history of the Fed’s study, the 2024 Diary of Consumer Payment Choice, cash was not the method most-often used for in-person payments of $25 or less. Cash was tied with debit for these smaller payments.
Cash still shows some stickiness, but it is now second to P2P apps for payments between people. Cash is in third place for making all types of payments, surpassed by credit and debit cards. Cash came ahead of checks for all types of payments.
Notably, Target, the nation’s #7 retailer as ranked by the National Retailers Federation, announced that it will stop accepting checks on July 15. (Walmart, the #1 retailer, still takes personal checks.)
But here’s a wrinkle on P2P: As consumers have moved towards digital for paying each other, they’ve picked up some inertia. Few show any inclination to move once they’ve selected a P2P provider.
A J.D. Power blog covering the firm’s research suggests that "users love the one they’re with."
This trend comes at a point when some P2P brands have been working to broaden the types of payments that people can make via their P2P accounts.
Block’s Cash App, for example, can be used to send money, stocks or bitcoin, includes a physical debit card that can be swiped anywhere, and offers a savings account feature. Venmo’s app can be used at some merchants at physical point of sale using QR codes and tapping either Venmo balances or financial institution accounts. Consumers can obtain Venmo-branded credit and debit cards. And in a recent earnings briefing, PayPal’s Alex Chriss, president and CEO, said his team is working to broaden Venmo services further.
On the horizon: Apple, provider of Apple Cash P2P service, will roll out its new "Tap-to-Cash" as part of its iOS 18 update later this year. This will permit iPhone users who have Apple Cash accounts to pay other Apple Cash account holders face to face using Airdrop, which connect Apple devices with each other.
Fed Reports Person-to-Person Payment Trends
The Diary of Consumer Payment Choice research is based on diaries of how individuals spend and with what payment form over three days each October. The Fed’s Financial Services section has been running the survey since 2016. The latest edition is based on diaries filed by just over 4,500 people.
The chart below shows the trends in payments between people as tracked by the study since 2017. The portion of payments made in cash has plummeted from 75% at the outset to 42% in the latest study. P2P payment app usage has risen from 12% in 2017 through to 55% in 2022 and 50% in 2023. (The slight dip in 2023 reflects stabilization of the trend, according to the Fed’s commentary.)
"Diminishing reliance on cash for P2P payments mirrors the broader decline in cash usage across various payment methods," according to the study report. "This may signal a widespread consumer transition away from paper-based payments, though the consistent share since 2022 also may suggest a floor to cash use for P2P payments."
Read more: PayPal’s Dan Schulman on the Future of Banking: Digital, Seamless and Consolidated
P2P Users Are Wedded to Their Payment Apps
The J.D. Power research, drawn from the firm’s U.S. P2P Transfers Satisfaction Study, indicates that consumers, once having chosen a P2P platform, tend to stick to that brand. Only 8% of P2P users say they "definitely will" or "probably will" switch to another P2P provider in the next year.
In addition, the J.D. Power research found that major banks’ offerings of Zelle are consistently more likely to hold onto users than two of the three P2P brands with the highest market share — PayPal, Block’s Cash App, and PayPal’s Venmo.
The firm asked consumers to rate the Zelle experience as provided by each of seven major banks that are part of the network by indicating if they would switch. The providers include Bank of America, Capital One, Chase, PNC, Truist, U.S. Bank and Wells Fargo.
Consumers of various brands said they definitely or probably will switch to another P2P app from their current choice as follows:
- Apple Pay Cash 10%
- Cash App 10%
- PayPal 9%
- PNC Zelle 8%
- Bank of America Zelle 7%
- TD Zelle 7%
- U.S. Bank Zelle 6%
- Venmo 6%
- Capital One Zelle 5%
- Chase Zelle 5%
- Wells Fargo Zelle 4%
Some brands weren’t included in the ranking above due to small sample sizes.
The study found that Zelle, no matter which bank offered it, generally produced higher satisfaction than fintech brands.
The top three reasons the minority that would switch says they’d likely do so: to move to the P2P provider that friends and family use, 39%; to address concerns over security, 28%; and poor customer service, 19%.
Read more:
- Consumers Have Embraced Digital Wallets. But They Also Want Them to Be Better
- When Will Mobile Banking Finally Kill the Plastic Credit Card?
- Apple Shifts Focus As It Drills Deeper into Payments
P2P Apps Have a Mission Cut Out for Them
J.D. Power said that as P2P apps mature, people will expect higher service quality.
"Whether that’s seamlessly integrating into a digital wallet, more convenience for paying a point of sale, or offering an increased level of security, platforms need to find a way to identify where their services can be strengthened, but also effectively communicate those improvements to users," the firm said in its blog.
Read more from Brett King: The World is Going Cashless. Get Over It.
