The Problem With P2P Payments

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Bank Technology News ran an article titled P-to-P Gains Steam with Pulse’s Support, but Consumer Demand Appears Lacking which included the following:

“P-to-P right now still lacks an audience,” said [analyst with a very reputable analyst firm]. But banks are nevertheless committed to the format, expecting that P-to-P will eventually balloon in popularity.

My take: The article demonstrates three problems regarding P2P payments that are pervasive in the financial services industry. The three problems all have something in common: Terminology issues.

The notion that “P2P lacks an audience” couldn’t be further from the truth. P2P payments — the transfer of funds (or equivalent) between non-business entities — is something that consumers do nearly everyday.

Despite the quotes in the article from representatives of other firms, Aite Group is the only analyst firm to estimate the size (transaction and dollar volume) of P2P payments across all channels, methods, and use cases (forgive my horn-tooting). In the US, consumers made more than 11 billion P2P transactions, totaling more than $865 billion, in 2010.

Where, exactly, is this lack of demand?

What’s that? You say the article was referring to electronic P2P payments?

Oh, well why didn’t the article say so?#[email protected]?

I’m tempted to say, as Emily Litella would have, “Never mind.” But I won’t, because there are the three problems regarding P2P payments the industry should address. 

This first of the terminology-related problems is this: Industry insiders fail to recognize that P2P payments is actually an active, vibrant, thriving source of money and funds transfers. But P2P is not the same as electronics P2P. Nor is electronic P2P necessarily synonymous with online P2P, let alone with mobile P2P.

Domestic bank transfers and gift cards are electronic forms of payment, but not necessarily online (i.e., performed on a financial institution’s web site). Mobile P2P payments, on the other hand, could be made through prepaid top-up cards, or via an FI’s mobile banking capabilities (which might one and the same with its online capabilities).

The second terminology-related problem is that when financial services industry insiders talk about P2P payments, there’s a gross lack of specificity regarding the type of transactions (i.e., use cases) that fall under the P2P banner.

What would you guess are the most common reasons for P2P transactions?

If you said Christmas presents, congrats, that’s #1. In terms of number of transactions. It’s not #1 in dollar volume, though. That honor goes to financial support (like alimony). You might guess what the other top types are, but you wouldn’t have any clue what percentage of all P2P transactions any of those use cases account for.

So how can industry insiders talk about “demand” for P2P when they have no clue what types of transactions are being conducted, and the propensity or applicability of those transactions to migrate from non-electronic to electronic forms of payment?

The third terminology-related problem — and probably the most important one — involves consumers. Have you ever asked someone (who doesn’t work in financial services, you know, a real person): “How many P2P transactions do you make each month?”

If the person is over the age of 10, they’ll say “how many WHAT transactions?”

If the person is under the age of 10, they’ll giggle uncontrollably, thinking that you said something naughty. (Trust me, I tried this with someone under the age of 10).

So when a bank or credit union announces to its customers (members) that it now offers P2P services on its web site, consumers react by saying “Huh?”

Oh sure, there are some who get it. Just like the “some” who got account aggregation when it launched, and who get the other geeky terms that bankers have for their products and services (few know what remote deposit capture is, but many think it’s cool to take a picture of a check with their smartphone).

Bottom line: There’s plenty of “demand” for P2P transactions, with well over a billion electronic P2P transactions already occurring in the US each year (~350 million occur in the UK, and 300 million in Australia, in case you were wondering). Migrating the remaining P2P transactions — or, more realistically, some percentage of those transactions — is a marketing challenge the industry must address. 

I’ll be publishing a report this year on Marketing P2P Payments, so I’m going to hold off from recommending how FIs can overcome the P2P problem(s). But, as they say, understanding the problem is the first step to fixing it. Or something like that. 

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