The market for P2P payments is finally taking off after years of false starts, but there are still many unanswered questions. The biggest one: How do banks get value out of offering this service free of charge?
Two-thirds of financial institutions offer or are in the process of implementing a domestic P2P offering, according to
Cost is a major factor among the holdouts, who worried about the ROI for a product that consumers are already conditioned to expect for free. Only 11 percent of respondents said they felt banks could justify charging a fee for P2P, likening it to an ATM fee; 29 percent felt they could charge a fee for specific use cases such as real-time payments.
But there's another way to justify the investment: engagement. Forty-one percent of respondents said that they see P2P as a viable tool to get more consumers using their online and mobile banking channels, while 23 percent said P2P is necessary to respond to competitors implementing the service.
And indeed, nearly three-quarters of respondents reported that customer or member engagement had measurably increased as a result of offering a P2P service.
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It's clear that mobile banking and social media have changed the perception of P2P payments over the years. Many earlier attempts to implement mobile P2P in the U.S. predated the iPhone and the app economy, and thus were marketed to a consumer audience that used their phones primarily for calls and texts.
PayPal, for example, launched PayPal Mobile in 2006 for text-based payments. It tried to expand this to commerce (users would send a text message to a code printed in magazine ads to place an order) with its then-parent company, eBay.
A text-based P2P rival, Obopay, also launched in 2006 and tested its system with Citigroup, but by 2010 the company pivoted to bank transfers. It did, however, find a following among unbanked consumers — despite doing no marketing to that segment. Today, Obopay targets markets outside the U.S.
Venmo finally demonstrated a market for mobile P2P, particularly among millennials, by creating an app that treated the service more like a social media account than a bank account. But despite Venmo's popularity, it still is not profitable.
The bank-run Zelle P2P network has also grown an audience by focusing less on social media and more on bank integration. It's designed to have a consistent experience across bank brands, reducing the friction of enrollment. However, Zelle's bank ties have also caused it some issues — early on, consumers who trusted their banks' brands assumed Zelle offered the same fraud guarantees they get from credit cards; and some credit unions were wary about joining a P2P network run by banks, which they view as their competitors.
